In today's investing world, many investors are really questioning their asset allocation and how that will help them or hurt them during retirement. Many average investors are questioning the value of having stocks in their portfolio. There is a real concern about the stock market because everyone just went through the worst ten year period in the market in our lifetime.
The real question that needs to be asked when evaluating stocks in a portfolio is how do you measure volatility. There are two ways to measure volatility. The first are the swings up and down (standard deviation) and the second is the purchasing power of your dollars (the impact of inflation on your portfolio). Here is a great video from Dimensional about this topic: http://www.dfaus.com/2009/12/retirement-risk-and-return.html.
This video clearly shows that having some stock in your portfolio is critical for achieving your retirement goals. Stocks can extend the life of your portfolio because you typically get higher net returns that you would in only fixed income. Unfortunately, you will have to accept greater volatility to get these higher net returns. This is the ever existent relationship between risk and return.
If you are interested in talking about your retirement, or looking at your portfolio and its risk and return characteristics, please contact us at 843-873-4420 or rick@waypointus.com.
Richard E. Coakley, Investment Advisor
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