Dear Liz: My wife and I are blessed to have a very significant income from real estate holdings that will provide us with almost enough money to live on very well for the rest of our lives. That leaves retirement accounts and Social Security as mostly discretionary or extra income.
Currently, we have 90% of our retirement accounts and Roth accounts in stock. I figured that, given our situation, we can afford the risk. We have the other 10% in an annuity. Just curious to know what you think of our aggressive position. Is it foolish, and should we be more conservative, such as having a portion in bonds?
Answer: Another question to ask is, “If I don’t need to take this risk, why should I?”
Most people need the growth that stocks offer to achieve their long-term goals, such as a comfortable retirement. Even in retirement, people typically need at least some exposure to stocks to offset inflation. To get that growth, investors must endure the inevitable downturns when markets slide. But why take on more risk than you need?
Also consider that real estate income isn’t typically guaranteed. While real estate and stocks aren’t closely correlated in the long run, both can be affected by economic crises. It might be painful to see your main source of income drop along with your stock portfolio.
A balanced portfolio likely would offer more modest returns but sounder sleep the next time the stock market swoons. This would be a great topic to discuss with a fee-only, fiduciary financial planner.