By Khristopher J. Brooks
/ MoneyWatch
Changing investment strategies for retirement
Retirement planners typically tell Americans to invest 60% of their retirement funds in stocks and 40% in bonds. But that time-tested strategy fell apart this year as poor performance in many financial markets wiped out many workers' savings. A classic 60-40 portfolio has lost 15% this year, according to the Wall Street Journal.
The downturn might have some investors itching to alter their investment mix. But that's probably not the best idea, Wall Street Journal reporter Akane Otani told CBS News.
"For people with a longer-term horizon, I think the advice generally stays the same even in a year like this year — which is to not do anything too crazy and not try to shift a lot of your money from one part of the markets to another because it usually tends to backfire," she said.
For Americans inching closer to retirement, one of the better options could be to hold retirement funds in savings or money market accounts "that are earning more in interest now than they were for the last several years," Otani said.
A major reasons retirement accounts slumped this year is because returns on both stocks and bonds are down. Recovery from thecoronavirus pandemic, Russia's ongoing war in Ukraineand continued snags in the global supply chain have all weighed heavily on the U.S. economy this year, dragging markets down.
Still, the 60-40 rule was designed to give investors an average annual return of 7%, Vanguard Chief Economist Roger Aliaga-Diaz said in a research note Tuesday. The strategy has generated 8.8% in returns on average every year since 1926, he said, noting that, because that is an average, some years will bring less than 7% while others will garner more.
"Prominent and useful as a benchmark though it is, 60/40 is not magical," Aliaga-Diaz said in the note. "This isn't the first time the 60/40 and the markets in general have faced difficulties — and it won't be the last."
Thanks for reading CBS NEWS.
Create your free account or log in
for more features.
As a seasoned financial expert with extensive experience in investment strategies and retirement planning, I can confidently navigate the complexities of the current financial landscape. My in-depth understanding of market dynamics and comprehensive knowledge of various investment vehicles allows me to critically analyze the information provided in the article by Khristopher J. Brooks on MoneyWatch.
The article addresses a fundamental shift in traditional retirement investment advice, which has long advocated a 60% allocation to stocks and 40% to bonds. According to the Wall Street Journal, this conventional wisdom has faced significant challenges in the current year, resulting in a 15% loss for a classic 60-40 portfolio. The author suggests that the poor performance in financial markets has eroded many workers' savings, prompting a reconsideration of investment strategies for retirement.
To bolster the credibility of the article, Wall Street Journal reporter Akane Otani is cited, offering insights into the current market conditions. Otani advises against making drastic changes to investment portfolios, especially for individuals with a longer-term horizon. She cautions against shifting funds dramatically between different market sectors, as such actions tend to backfire.
For those nearing retirement, Otani suggests an alternative approach: holding retirement funds in savings or money market accounts that are now earning more interest than in previous years. This strategy reflects an acknowledgment of the challenging economic environment marked by the aftermath of the coronavirus pandemic, Russia's war in Ukraine, and disruptions in the global supply chain.
The article introduces Vanguard Chief Economist Roger Aliaga-Diaz, who defends the traditional 60-40 rule. Aliaga-Diaz highlights that the strategy, designed to provide an average annual return of 7%, has historically generated an average of 8.8% annually since 1926. However, he emphasizes that the 60-40 allocation is not foolproof and may face difficulties, as witnessed in the current market conditions. Aliaga-Diaz's perspective adds depth to the discussion, acknowledging the strategy's historical success while cautioning against viewing it as infallible.
In conclusion, the article by Khristopher J. Brooks serves as a valuable resource for investors and retirement planners navigating the challenges posed by the evolving financial landscape. It encourages a thoughtful approach to investment decisions, considering both short-term market fluctuations and long-term financial goals.
