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Financial Planning Question: Asset Allocation

Q: I am 57 years old and want to retire at 60. I have a current balance $752,000 on my 401(k) and a pension of about $ 2,500 a month. My 401(k) is split 5% cash, 44% bonds, 46% large cap 1%, small cap, and 4% international. We have a new financial advice feature on our 401(k) website and they are recommending these changes: 32% bonds, 36% large cap, 7% small cap, and 22% international. What do you think? 22% in international seems high with all the problems in Europe and Asia.

A: Many of the rebalancing and asset allocation tools available use a process referred to as strategic asset allocation.  This is when you identify a target allocation based on your age, risk tolerance, time horizon, etc. and the portfolio will be positioned to stay within the specified allocation regardless of what is going on in the global marketplace. As such, a lot of the portfolios that are managed to a strategic allocation have underperformed the past few years due to the large percentage in international markets.

At Capital Investment Advisors we tactically manage for income in our portfolios.  This allows us to use asset classes that are going to pay us income while we own them.  You are more than welcome to come in for a portfolio review.


 

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