By Christine Benz, Morningstar
CHICAGO (Morningstar) -- Ernesto, a 63-year-old former engineer, is looking forward to a long and happy retirement with a peace of mind most retirees and pre-retirees would find enviable. Having retired seven years ago and still earning some income through periodic consulting work, he relies on a pension that more than covers his day-to-day living expenses. His children are grown, and he owns his home outright. In addition, he has managed to set aside more than $1 million in investment assets.His investments' conservative positioning meant minimal losses during the bear market. But with more than two-thirds of his portfolio sitting in cash, Ernesto acknowledges he's very likely playing it too safe. "I am uneasy about the opportunity costs I might be incurring," he wrote.
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Ernesto's portfolio is streamlined and conservative to the hilt, and his long-term investments are all favorites of Morningstar's ( MORN) fund analyst team.
Retirees such as Ernesto, who don't have to rely on their portfolios to pay for day-to-day living expenses, are a dwindling group. In general, such retirees' portfolios can be more stock-heavy than those of folks who expect to tap their assets for living expenses on an ongoing basis. And though most retirees will want to hold one to two years' worth of living expenses in cash, large cash holdings are also usually unnecessary for people such as Ernesto, apart from an emergency fund to cover unanticipated or extra purchases. In that vein, Ernesto noted that he'd like to keep some cash on hand to pay for one of his hobbies within the next few years. (I won't get into specifics here to protect his identity.)