Retired? Might Want to Keep Some Stocks

These are unsettling times for retirees who depend on their investments for income, but the right strategy can help tremendously with the preservation of assets.

With markets erratic, many older people may be tempted to dump stocks. But that would be a mistake, according to a study in the Journal of Financial Planning. The study says that older people should hold onto their stocks and sell bonds first to cover living expenses.

"The higher your stock allocation, the less likely you are to run out of money," says John Spitzer, a professor at the State University of New York -- Brockport, who conducted the research along with a colleague, Sandeep Singh.

The study flies in the face of conventional wisdom, which holds that older people should increase their stakes in bonds. Still, the findings are worth considering, at a time when managers of popular target-date portfolios and other funds are working hard to find the best mixes of stocks and bonds.

In recent years, some of the funds have altered their thinking, changing to bigger stock allocations. If that shift continues, the professors -- who now are on the fringe -- could become close to the mainstream of the investment world.

To appreciate the recent study, consider this: For decades, financial advisers have held a central belief about portfolio management. As investors age, the thinking goes, they should reduce stocks and increase the percentage of holdings in bonds.

The target-date funds follow this line of thought. Holding broad mixes of stocks and bonds, the funds are designed for savers who plan to retire in particular years, such as 2020 or 2030. As the retirement date approaches, the funds lower their equity allocations and increase bond holdings.

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