Craig Israelson has a nice article on Nest Egg Survival in the March issue of Financial Planning. The overarching point he makes is that multi-asset portfolios tend to preserve assets better than all-bond portfolios when in distribution mode. This is a crucial insight since financial advisors are going to see more and more clients in distribution mode. This year, in fact, is the year the front end of the baby boom turns age 65 (1946 + 65 = 2011). The whole article is well worth reading.
Interestingly, the 60/40 portfolio and the multi-asset portfolio dominated the all-bond portfolio in every rolling 25-year time frame. Moreover, this was during a time from (1970-2010) when bond returns were at all-time highs.
Clients who are nearing retirement often have a tendency to want to pile into bonds to “preserve capital.” This instinct is probably wrong. Mr. Israelson shows rather convincingly that, although a balanced account or multi-asset portfolio has greater variability of outcomes than a pure bond portfolio, a mixed asset portfolio is probably the way to go even when in distribution mode. Over the 17 overlapping 25-year periods studied, the mixed asset portfolios had average ending balances more than twice as high as the bond portfolio—and in no 25-year period were they worse. (Lest you think 25 years is extreme, the Social Security Administration will tell you that if you are age 65 today, your life expectancy is another 19.72 years—which means that 50% of the 65-year-olds will live longer than that. And most of us aspire to be in that second group.)
Source: Financial Planning magazine
Broadly diversified multi-asset portfolios like the Arrow DWA Balanced Fund (DWAFX) might be just the ticket for clients that are going to need distributions for an extended period of time.
To obtain a fact sheet and prospectus for the Arrow DWA Balanced Fund (DWAFX), click here.
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