I MET WITH MY financial advisor last week to discuss my portfolio’s performance in the first quarter. This was the first time I’d looked at my investments since the start of the public health crisis and economic shutdown.
My portfolio, with a target mix of 35% stocks and 65% in bonds and cash investments, was down 6.8% for the quarter, while the S&P 500 was off 19.6% and the Dow industrials fell 22.7%, including reinvested dividends.
So far, my portfolio has done what it was designed to do—that is, to survive a financial crisis without suffering life-changing losses. To be sure, my investments will underperform during a bull market. But I’m willing to make that sacrifice. At age 68, my goal is to own a low-risk portfolio that can limit my losses in a down market, while having enough growth in principal to keep up with inflation.
My portfolio is composed of broad-based Vanguard Group index funds. It was created by my financial advisor with my input. My investment mix prior to our recent meeting was as follows:
My advisor decided it would be a good time to rebalance my portfolio. He thought we should boost the stock allocation back to the 35% target. He also thought we should shorten the duration of the bonds. He suggested increasing the sum in the short-term bond fund, while reducing the intermediate bond fund, so they would have equal weighting. He also switched the international bonds from a mutual fund to an ETF to benefit from the lower fee.
Here’s how my portfolio looked after it was rebalanced:
Although my portfolio is down for the year, I’m satisfied with the results. It shows that holding a diversified high-quality bond portfolio can lessen the impact of a bear market. I believe my nest egg is large enough that I can take this more conservative approach and still enjoy a comfortable retirement.
You might ask, “Why didn’t you just put all your money in a target-date fund and save the cost of hiring an advisor?” You’re right, I could have bought the Vanguard Target Retirement Income fund or the Vanguard Target Retirement 2015 fund, and probably met my financial goal of seeking current income with minimal risk.
But I’m willing to pay the 0.3% fee to have an advisor I can talk to. It has a calming effect on me, allowing me to sleep at night when all hell is breaking loose.
At times like this, an advisor can be worth his or her weight in gold. Indeed, in the long run, I believe having an advisor will pay for itself by preventing me from making irrational decisions during both bad times and good. When it comes to our investment results, the market’s performance is important. But even more crucial is our own behavior.
The same, of course, can also be said about most things in life—including the coronavirus. According to public health officials, there’s no magic bullet to protect us from this insidious disease. Instead, our best defense is staying at home, physical distancing and washing our hands frequently. Want to protect both your health and your portfolio? Think carefully about your own behavior.
Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include School’s in Session, Be Prepared and Bearing Up. Follow Dennis on Twitter @DMFrie.