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Dear Liz: You recently wrote that if you need your money in 10 years, you should not be in stocks. My husband and I are both in our early 70s and will need some of our money in 10 years. What do you recommend instead of stocks?

Answer: Financial planners recommend retirees keep a portion of their portfolios in stocks or stock mutual funds to offset the erosion of buying power that comes with inflation. Portfolios with some exposure to stocks are less likely to “fail”—be depleted before the client’s death—than those that are entirely invested in bonds and cash. The recommended percentage of stocks can vary depending on the advisor and the client, but often ranges from 20% to 50%.

Some planners like to make sure their clients have cash equivalent to two years’ worth of expenses and short-term bonds equal to three years’ expenses, to avoid the necessity of having to sell stocks during a downturn. But your portfolio’s proper asset allocation depends on a number of factors, including your other sources of income. If your living expenses are covered by Social Security and pensions, for example, you may be able to tolerate a higher exposure to stocks.

All this is worth discussing with a fee-only financial planner who can take a look at your financial situation and give you individualized advice. You can get referrals at Garrett Planning Network (www.garrettplanningnetwork.com) and the National Association of Personal Financial Advisors (www.napfa.org).

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Categories : Investing, Q&A, Retirement

4 Comments

1

Retirees need some exposure to stocks, but as you indicated, it depends on ones circumstances. Lately I’ve read that smaller investors are discouraged with stocks and therefore are withdrawing from them. As a retiree, I believe in keeping some funds in bonds,and cash in addition to a smaller percentage in stocks, so that you won’t have to withdraw from stocks during a downturn.

2

Dividend-paying stocks are another alternative to consider. They fare better in bear markets (though they tend to lag when stocks are soaring). Yields are typically 1-4%. S&P’s Dividdnd Aristocrats feature stocks that have increased dividends for at least 25 years.

3

Liz,

I just read your 5 place to retire overseas and noted you listed Chiang Mai. I agree with what you said, but to be fair, you should mention that Chiang Mai suffers from smoke pollution 9 months out of the year. Farmers in the north burn their fields in order to harvest the next season. Smoke also comes from the same reason in Cambodia and Laos. This has been going on for years and will continue for years to come. I live off and on in Koh Samui island and visit friends in Chiang Mai. I was there last March and the pollution was so bad that my eyes burned and I developed a cough. Really too bad as Chiang Mai would be a lovely place to retire if not for the pollution. Thanks.

Jim

4

As an LA native, I might not even notice. (weak smile) But your comment is welcome and a good reminder that lists of great places to retire should be just a starting point for doing your own research.