First Person: My Stock-Heavy Retirement Portfolio Backfired

Yahoo Contributor Network

I was extremely ambitious with my stock-heavy retirement portfolio before the downturn of 2008-2009. I figured since I was only in my 30s, I'd have time on my side if the stock market crashed. My optimism backfired as my 401(k) portfolio lost more than $50,000 on paper. My biggest surprise was permanently losing half of the $40,000 I had saved into my Roth IRA when several companies filed for bankruptcy. According to a recent article by Next Avenue, there has been a rise in extreme retirement portfolios as many older people take a more aggressive approach to managing their portfolios. On the other end of the spectrum, a growing number of soon-to-be retirees are going to the opposite extreme and focusing too much on cash with more conservative allocations such as certificates of deposits and money market accounts.

Bending the rules

As a Gen-X investor, I believe many of the outdated rules about investing are no longer applicable. It used to be experts said the fixed-income part of the portfolio should equal the individual's age. At age 40, I would therefore have 40 percent in bonds and cash and 60 percent in stocks. However, I have to pay attention to the trends. If so many baby boomers are going to remain heavily invested in the stock market, it doesn't make sense for people from the younger generations to be more conservative than the older folks. Although I was burned by having a stock-heavy 401(k) portfolio before the downturn, I will also regret keeping 40 percent of my money essentially under my bed during the current raging bull market.

Having an exit strategy

According to the NextAvenue article, a recent study by Employee Benefit Research Institute (EBRI) showed 29 percent of account holders between the ages of 55 and 64 (baby boomers) had more than 90 percent of their retirement holdings in equities. I think studies such as the EBRI study are extremely useful to people in my generation. As more baby boomers exit the stock market, I need to have my own exit strategy in place. I plan to ditch my individual stocks and dollar-cost average into exchange-traded funds (ETFS) that pay dividends if boomers begin to dump their stocks as well as keep more money in a cash position.

Missing out on the game

After the dot-com bubble burst in the late 1990s, I temporarily stopped saving and investing for retirement. It doesn't surprise me that people who have been burned by the market are reluctant to play again. The study also showed that one in five boomer account holders had 90 percent of their holdings in bonds and cash. I think the boomers who are sitting on the sidelines with their cash could dramatically impact the stock market. During the dot-come bubble, the everyday investor drove the market up. The difference between now and 15 years ago is that I have retirement money to invest. Also, I'm not the last one to jump into the market as it seemed like during the dot-com bubble.

It's always a gamble to participate in the financial markets. I don't plan to go to the extremes by having too much or too little in the stock market. Having 60 percent of my money in stocks doesn't seem like enough although 90 percent is too risky. I'm settling on 75 percent allocation in equities until I hear the boomers coming. If they rush to take their money out of stocks, I'll adopt the old rule of having as much in fixed-income as my age.

More from this contributor:

Saving For College Even though Kids Are Grown

It Costs Too Much For Everyone in my Family to Work

Fighting Fair About Money
View Comments