This retirement stock portfolio is custom-made for millennials and anyone with decades left to invest
I look at a lot of retirement stock portfolios of millennials and one thing is almost always missing. They’ve got plenty of stocks and some even have a little real estate to balance things out but almost nobody invests in bonds. The millennials aren’t alone in their lack of fixed income investments. Many of my fellow GenX investors hold little or no bonds as well.
Even if you’ve got decades left until retirement, you still need an investment in bonds to smooth out your stock portfolio returns. It’ll put a consistent stream of cash in your portfolio and keep you from freaking out when stocks take a nose-dive.
After talking with a friend about the lack of asset diversification in most stock portfolios of the younger generations, I decided to share my own Ready-Made Retirement Fund I created on Motif Investing.
This is the third post highlighting four investing funds created on the Motif Investing website. Investing on Motif is a new way to buy stocks, giving you instant diversification and lower fees. See our earlier review of Motif Investing and how it’s changing the way people build their portfolios.
Check out the Ready-Made Retirement Fund on Motif Investing to put this idea to work in your portfolio.
The Most Important Question for a Stock Portfolio isn’t which Stocks to Pick
Asset allocation is the single most important idea in investing. Asset allocation is simply deciding the right mix of stocks, bonds and real estate for your portfolio according to your needs. Bonds generally provide security and stable cash flow. Real estate provides a little more growth and cash flow while stocks provide higher return but can take a portfolio on a roller-coaster ride during a market crash.
Having the right mix of these three assets means some of your money is protected against recessions while some of it has a chance to grow during the best of times. It also means you don’t freak out and panic-sell your stocks when the market tumbles.
It’s too bad that the media fixates on stocks, giving investors the impression that stocks are all there is to building a retirement portfolio.
Deciding the right mix of assets for your needs is a matter of putting together a personal investment plan. This means looking at how much you need in retirement, how much you have now and what kind of return you need to get there.
A Ready-Made Retirement Portfolio of Stocks, Bonds and Real Estate
Younger investors with decades left to retirement can be more aggressive in their asset allocation decision. I put together the following stock portfolio as part of my retirement fund on the idea that I still have about 30 years to retirement. The portfolio includes a mix of stocks, bonds and real estate through exchange traded funds (ETFs) and individual stocks.
Your own investments will differ a little according to your specific needs. You may want to add more individual stocks and more sectors if this is your only stock portfolio. I invest in three other portfolios on Motif Investing which diversifies my overall exposure across all the sectors.
The portfolio holds 25% in two bond funds, the U.S. Aggregate Bond ETF (AGG) and the SPDR Barclays High Yield (JNK). The aggregate bond fund is a mix of government, corporate and other bonds designed to track the overall bond market. It’s a relatively safe investment with a 4.5% annual return over the last ten years. The high-yield bond fund is more volatile because it invests in bonds of less financially-stable companies. I like the fund because it is a good bridge between the safety of bonds and higher returns on stocks.
The portfolio holds 20% in real estate REIT investments through the Vanguard REIT ETF (VNQ) and shares of HCP Incorporated. The Vanguard fund is a great addition, holding hundreds of individual companies that own commercial real estate. I like HCP because it is one of the largest healthcare REITs, positioned to profit from the demographic trend in the United States.
A little over half (30%) of the remaining investments in the stock portfolio are in four ETFs that invest in stocks. The S&P 500 ETF is the broadest while the energy and utilities funds give me extra exposure to two sectors with strong long-term potential. While emerging markets have been slammed over the past year along with energy prices, these stocks provide great long-term potential as well through faster economic growth.
The rest of the stock portfolio is held in a mix of eight companies that I like for long-term growth. A few are in the agriculture, healthcare and energy sectors which is an idea I highlighted in my American Future Fund as the strongest three themes over the next several decades.
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The Ready-Made Retirement Fund has matched the return on the S&P 500 since I created it earlier this month. That’s pretty impressive for a fund that includes bond investments and less risk than the general stock market. Over the long-term, I expect the fund to do well as agriculture and energy rebound while the bond portion should help smooth returns during market crises.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.