From this week's Barrons, courtesy of my friend, Ted:
On the equity/fixed-income side, the traditional rule of thumb has been for retirement portfolios to have a 60/40 split between stocks and bonds. But until the Fed starts raising interest rates, retirees should consider curbing the fixed-income portion of their portfolios. Because bond prices fall as rates climb, cheaper fixed-income investments will be available down the road. A 65/35 or even 70/30 tilt might be best now. Warns Jim Marlowe, a 61-year-old retired broker supervisor at Merrill Lynch: "Bond funds are where all the money is going right now, so when the market gets a whiff of higher rates, it'll be 'Katie, bar the door.'
Ummm... stock prices might fall also when interest rates are raised. This points out a conundrum faced by retirees right now: do you keep your money safe, in short term treasuries (let's just assume that short term treasuries are indeed safe - that's a debate for another day) - earning less than 1%, providing almost no income? Or do you invest your money into another asset class where the prospects for price declines are significant at the least?
It's return-free-risk all over again.
