This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Makeover Matures Younger Retiree's Portfolio

By Christine Benz, ( Morningstar)

CHICAGO ( Morningstar) -- Susan, a retired finance executive, has put together an enviable portfolio. She has chosen her investments with care, and it shows. Rather than opting for a portfolio of funds run by household-name firms (though there's not necessarily anything wrong with that), her holdings largely consist of mutual funds overseen by top-notch boutique investment managers such as Royce, Wasatch and Amana. And even more important, she has been an avid saver and a successful investor, amassing a total of more than $2.8 million as of early May. Given her reasonable living expenses, she's in a good spot, even though she could be funding 30 or more years of retirement.

So what's the problem? Simply put, Susan's portfolio is out of sync with her life stage. Although she is 55 and recently retired, she has a minuscule bond position (2% of her total portfolio) and an only slightly larger cash stake (13% of assets). Susan is cognizant that her asset mix is more appropriate for someone in accumulation mode than a person actively tapping her portfolio to meet living expenses. "I recognize the need to reduce the volatility of my portfolio as well as to create a steady stream of income to live off of," she wrote.

At 55, single and already retired, a retired finance executive can have an enviable portfolio but still not be best positioned to pay for another 30 or more years of leisure.

As a single woman without kids, Susan has the freedom to enjoy the fruits of her years of hard work. "I want to spend retirement enjoying all the money I have saved," she wrote. "My goal is to die with one penny left in the bank!" In addition to making sure her portfolio can fund her living expenses and cover travel and other leisure pursuits, Susan would like to buy a new townhome within the next year, with an expected purchase price of $400,000 to $500,000.
More from Morningstar
Preparing a Portfolio for Retirement
How to Know Your Retirement Cash Flow Needs
The Bucket Approach for Retirement Income

The before portfolio
Apart from its equity-heavy stance, Susan's portfolio has a lot to recommend it. It consists of three separate components: a rollover IRA, Roth IRA and taxable brokerage account that is her largest pool of assets (more than $2 million). In aggregate, her portfolio leans slightly toward small- and midsize firms and growth stocks over value, but is generally very diversified by investment style, company size, and geography.

Among Susan's anchor holdings are Meridian Growth (MERDX) , Harbor International (HAINX) , Amana Trust Growth (AMAGX) and Amana Trust Income (AMANX) and T. Rowe Price Small Cap Value (PRSVX). Susan acknowledges that she put a considerable amount of time and effort into selecting her investments, noting that she built her portfolio based on "diversification, allocation, asset location, risk factors, manager tenure, fees, tax efficiency, turnover and performance against the relevant index and category." Phew!

At the same time, her portfolio is arguably more busy than it needs to be, with more than 20 separate fund holdings, some of them relatively small positions. Susan also has about 20% of her assets riding on a single manager -- Nick Kaiser at Amana Growth and Amana Income. Kaiser has done a phenomenal job at his two charges. His shop is a small one, though, and the two funds may have similar biases because both are run in accordance with Muslim principles.

Last but not least, though she has ample cash to draw upon to meet living expenses as well as significant equity exposure to provide long-term growth, her portfolio doesn't include an intermediate portion, which should include core bond funds or even conservative- and moderate-allocation funds melding growth with stability.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
MORN $81.74 -1.22%
TROW $74.29 -0.85%
AAPL $94.19 -1.04%
FB $118.06 0.54%
GOOG $695.70 0.48%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs