Study: Most Investor Portfolios are Underweighted in Bonds

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Investors can afford to be aggressive when they are younger, but that aggressive manner should be mellowing with age. As you get older and your paychecks stop coming, you need to rely less on stocks and more on sources of fixed income — bonds, pensions, CDs — to pay your bills during retirement.

Does that mellowing really happen, though?

SigFig analyzed the asset allocation of more than 30,000 investors across all age groups and compared that to their ideal allocation, based on their risk profile and investment horizon. The result: across all age groups, investor portfolios were too heavy on equities and too light on fixed income investments.

We found that 93% of investors aged 50 to 60 had too much of their portfolios invested in equities; more than investors half their age — the 20- to 40 year-olds — with 90%.

Across all age groups, investors’ portfolios are simply lacking in bonds.

And as they get older, a greater proportion of investors have far less of them than they should. A 2014 study by the Investment Company Institute, a mutual fund industry group, found that a third of investors in their 50s had 100% of their IRA accounts in stocks, and so did a quarter of those age 60 to 64.

Why the love of stocks?

  • Blame it on the Great Recession. Investors, especially those Boomer-age and up, are still feeling the effects of the market crash in 2008-2009. According to the Federal Reserve, Americans saw $1.3 trillion of wealth vaporize in the first quarter of 2009 alone. Older investors saw their retirement portfolios shrink so much, they’re still heavily invested in equities to make up their losses.
  • Bonds are complicated. Stocks are easier to understand and to follow online. Bonds, with their multiple maturity rates, yields, prices and other factors to follow, can be head-scratchers. Most Main Street investors lack a deep knowledge of bonds.


Three Re-Investing Strategies for Retirement


  1. Readjust your stocks. If you are over 50, your retirement nest egg probably shouldn’t be invested in 100% of any one thing. That doesn’t mean you should give up on stocks. Jane Bryant Quinn, a personal finance expert at AARP, says Boomers should stick with at least 50% in stocks because fixed-income investments alone won’t be enough to carry you through in what could be 30 or more retirement years.

  3. Get a fix on your fixed income. Take a look at all the guaranteed sources of money you can get, including Social Security, a pension, lifetime-payout annuities, inflation-adjusted bonds, short-term bond funds and certificates of deposit. All your essential expenses during retirement should be covered by these investments. Consider it your “safe” money.

  5. Rethink your expenses. If the “safe money” won’t produce enough income to cover your basic expenses, rethink and reduce those expenses. You can’t afford to gamble on stocks to cover them.
Vanessa Richardson is a freelance writer in Northern California who writes about personal finance, business and — for a total 180-degree turn — scuba diving.