Perfect Portfolios: Finding the Right Fit


With high jobless claims and various worries from abroad still staring investors in the face, it's no surprise many are still skittish about jumping whole-heartedly into the markets. Gold and silver, as well as alternative assets, continue to lure investors. But many realize they can't stay away from stocks for good. So what's an investor to do?

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Financial planners say it's best to stick with a long-term strategy. But that doesn't mean that investors should set their asset allocation and forget about it. Many financial advisers and market strategists favor large-cap, U.S. dividend-paying stocks in today's market. Also, with continued worries about inflation, many pros are pointing to commodities and other hedges against inflation, such as Treasury inflation-protected securities (TIPS), which are bonds that make adjustments based on the Consumer Price Index. But bonds in general could suffer if interest rates rise, so some pros recommend putting only a small amount of your portfolio in a short-term bond fund.

The right mix of assets depends on lots of things, of course, including investors' appetite for risk and the size of their savings. While no single approach is right for everyone, each month SmartMoney provides a suggested mix of assets for investors at various stages of life. Below, our latest thinking, along with a few recommended adjustments.

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Disasters and conflict overseas might make you pause before investing abroad, but don't be swayed by short-term events: You're still decades away from retirement. Sizzling economies like China's and Brazil's can offer a world of opportunity for young investors, which is why many pros suggest you put roughly a third of your portfolio abroad. Commodities, meanwhile, can be a good offset for inflation and provide more diversification.

40-Year-Old Couple With Kid Headed to College

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Even if you might need to dip into your savings to cover Johnny's tuition, you should still keep a big chunk of your assets in stocks. Many advisers say bond prices are high and a little rockier these days—reasons to put slightly less of your portfolio in fixed-income investments. Jason Jenkins, president of Causeworth Asset Management in San Diego, adds that inflation is his top concern now; he likes commodities as a hedge.

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Thanks to smart decisions earlier in life, you aren't fretting about outliving your savings. With your heirs in mind, you can stuff your portfolio with foreign stocks and alternative assets. And if you're helping the grandkids with, say, a 529 plan, you can be aggressive with that portfolio, says planner Roger Wohlner, of Asset Strategy Consultants in Arlington Heights, Ill.

35-Year-Old Married Couple With a Young Child

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You have many years before Junior heads off to college and even longer before you're likely to retire, so you should emphasize stocks. Despite jitters in foreign markets because of political uprisings in the Middle East and debt woes in Europe, experts still recommend investing a portion of your portfolio overseas. Bonds could suffer if interest rates rise, so investment pros say you should only put a small amount of your portfolio in a short-term bond fund. You might want to invest some of your savings in alternative assets like commodity funds or so called market-neutral funds, which can reduce portfolio volatility because they aren't generally correlated with equity and fixed-income markets. Jason Jenkins, the president of Causeworth Asset Management in San Diego, says you should be just as aggressive with a college-savings fund while your children are young, but gradually shift those accounts to hold more bonds and cash as the kids near college age.

42-Year-Old Couple; Husband Is Unemployed

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Hiring has been picking up recently, but until you land a new job consider being more conservative with your family's portfolio. Doug Kinsey, a partner at Artifex Financial Group in Oakwood, Ohio, says that both stocks and bonds might be more volatile in the near future because the markets have had a huge run-up. You don't want to be forced to tap your portfolio to make up for lost income right after the markets tank. Kinsey recommends alternative assets as a potentially more stable than traditional stocks and bonds this year. In addition to commodities, such as corn or timber, he says real estate investments can also balance out portfolio risk. Real estate might include real estate investment trusts (REITs), equity in a second home or rental properties.

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If you need to make up for the loss of your late husband's pension and Social Security checks, you may consider putting about half of your savings into a guaranteed investment such as a fixed annuity—a type of insurance product. Since bond prices and interest rates move in the opposite direction—and rates are historically low now—many experts say large-cap, dividend-paying stocks might be a safer way to generate income than a bond portfolio. Doug Kinsey, a partner at Artifex Financial Group in Oakwood, Ohio, recommends owning a bond fund or a portfolio of individual bonds with an average duration of less than 10 years. As a hedge against the "increasing prospect of rising inflation," he says, fixed-income investors should also put part of their portfolios in Treasury inflation-protected securities (TIPS), bonds that make adjustments based on the Consumer Price Index.

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