What Your Retirement Portfolio Needs Now

The private-equity allocation is the most difficult to access. Some of the investment offerings that trade as private equity actually have stakes in the business of running private-equity funds, not the funds themselves. The vehicles that really are the pools of capital can trade away from their NAVs. I wrote about MVC Captial(MVC Quote) at the beginning of the year. It has a well-diversified investment mix and has been steadier than many of the other names in the space.

Individual issues are probably a better way to go if you would just use Treasuries for domestic bond exposure, and the suggested 5% doesn't leave too much room for a lot of different domestic exposures. Individual Treasuries should do the trick, but some other suggestions are noted below.

Foreign bonds have only one ETF to choose: the SPDR Lehman International Treasury Bond ETF(BWX Quote). BWX yields a little above 4.13%, but adding in some Aberdeen Asia Pacific Income Fund(FAX Quote), a closed-end fund, would enhance the yield. If you allocate 5% to BWX and 4% to FAX, that would increase the yield by 100 basis points over just holding BWX. This play would avoid any unreasonable single country bets.

With the real estate allocation, you could find any of a number of REIT ETFs, but an odd thing happened last summer during the start of the financial sector meltdown. Real estate investment trusts correlated very closely with financial stocks, and anyone with too much exposure to both was forced to endure a lot of angst. Lately I have started to research buying publicly traded farms -- yes, as in agricultural ventures -- as a proxy for real estate in a portfolio.

It's a little too early for me to recommend any stocks in this space, but here are a couple of names for you to research on your own: Australian Agricultural Company Limited(ASAGF Quote)), which owns 585,000 head of cattle, and Black Earth Farming(BLERF Quote), which is listed in Stockholm but owns farmable but as yet unfarmed land in southwest Russia.

Several others are also available with a lot of them in Asia. One prudent way to invest would be to put 3% in to two different farms that are preferably in different parts of the world to lessen the risk.

Like with emerging markets, El-Erian's suggested allocation to commodities at 11% is a high number for a lot of people. (Generally, I prefer closer to 5% in commodities.) In looking at the broad-based commodity products, three of the popular ones are iPath DJ AIG Commodity Index Total Return(DJP Quote)), PowerShares DB Commodity Index Tracking Fund(DBC Quote) and Rogers International Commodity Index Total Return(RJI Quote).

Given the huge run in energy lately, I would want to avoid DBC because it allocates by far the most to the energy complex at 60%. That leaves DJP and RJI, but RJI has a more diverse allocation so it would be my choice here.

Inflation-protected bonds are a great tool. The simplest exposure is with iShares Lehman TIP ETF(TIP Quote), and I would also include SPDR DB International Government Inflation Protected Bond ETF(WIP Quote). You could add the missing 2% from above into this portion of the portfolio and put 3% in TIP and 4% in WIP.

The easiest way to buy infrastructure is the iShares S&P Global Infrastructure Index Fund(IGF Quote), but it may not be ideal for diversification as it has correlated very closely to the S&P 500. An investor willing to consider individual stocks might want to consider a combination of SNC Lavalin(SNCAF Quote) from Canada and Swiss engineering firm ABB(ABB Quote).

The special opportunities allocation could be viewed as a place to really go for outsized returns by isolating narrow themes such as countries or big macro trends.[excellent point] Brazil has a lot going for it in this light. Some choices here are the iShares MSCI Brazil(EWZ Quote), and plenty of stocks including Petrobras(PBR Quote), which which stand to dramatically alter Brazil's role in the global energy market in the next decade.

Agriculture is another theme that has been going in the right direction. The Market Vectors Agribusiness ETF(MOO Quote) is a good proxy for this segment, and anyone who knows about agribusiness knows about stocks like Potash(POT Quote) and Mosaic(MOS Quote). These stocks should continue to perform well.

The special opportunities portion of the portfolio will require active participation on the investor's part. These things go up a lot, and although the moves seem to be fundamentally justified, they often turn around very quickly. Investors in these sorts of themes should be willing to increase and decrease exposure with any dramatic price swings.

Any sort of portfolio has strengths and weaknesses. The drawback to the portfolio suggested by El-Erian is that very little can be added from country selection, sector weightings, stock picking or increasing dividends. The advantages include a likelihood of below-market volatility, and a very good chance no matter the market condition that something will always be doing well.

Remember too that allocations should be monitored constantly and changes made whenever circumstances dictate.