Mutual Funds
Creating a retirement portfolio for both a young couple, and an older couple, which would allow them to retire by a specific age can be a daunting task. Taking into account various inflation rates, and projected returns this article gives an example retirement portfolio for both a young and old couple
Younger couples can clearly take on more risk with the hope of getting a higher than expected return. For example they could put 25% of their savings into Federated Kaufmann Load Waived Fund. This mutual fund has a beta of 1.6 but a great chance for high return. With 27% in foreign assets, and 80% in mid, small, and micro cap stock, this mutual fund has already shown extraordinary returns of 13% over the last 5 years, and 10% YTD. This mutual fund has also received a 5 star rating from morning star and is run by a note worthy manager, Lawrence Auriana. To hedge off some of this risk they could put 10% of their saving in TIPS which are inflation protected treasury bills and receive about 5% interest. They could also hedge risk by putting 30% of their money in Oak Mark Equity. This mutual fund has 35% of their assets in bonds, and 58% in stocks. This fund is also run by a terrific manager, Clyde McGregor. With a high return of 13.3% over the last 5 years and below average risk (beta 0.56) this is a perfect mutual fund to balance out some of the inherited risk of this portfolio. As stated earlier, being they are younger and can take on more risk, so they could put 30% of their saving in Fidelity Contrafund. With a beta of 1.13% it’s a little more risky than other mutual funds, but has phenomenal returns. This can be credited to another terrific fund manager, William Danoff. They should also keep 5% of their portfolio in cash to use for a rainy day, either A. for good opportunity to pick up stocks, or B. for liquidity purposes. This portfolio would have an expected return of roughly 12%. Again, if inflation maintains its current rates 3% this couple would only need to have a 9% return for retirement. But being they are young this portfolio may allow for them to retire earlier than expected.
Older couples should have a safer portfolio if they want to retire on time. This is why should keep at least 10% of this portfolio to cash for liquidity purposes and 10% to TIPS which are protected by inflation. They could also put 20% of their saving into John Hancocks Classic Value Fund, which has very low risk (beta .04) with very high returns (last 10 years over 13%) This mutual fund is also run by a manager who has constantly performed and beaten the market year over year, Rich Pzena. They could also invest 35% of their savings into Oak Mark Equity fund. This mutual fund has had phenomenal returns, minimal risk, and is run by a great manager. Similar to the younger couples fund an older couple could also put 25% of their money into the Fidelity Contrafund. This older couple can take on some risk and this is the perfect fund for that. It has a slightly high beta, but constantly phenomenal returns. An older couple could expect to receive just over 13% on this entire portfolio year over year and retire on time.
Having a balanced portfolio, taking risk into account, with positive returns, even with a 3% inflation rate, will allow any couple to retire on time.