Retirement investing is not the simple task it once was made out to be, and for my money, in some way still is. Most portfolio managers tend to oversimplify the approach for proper retirement investing. They just throw in a mixture of stocks and bonds, with a heavier weighting towards bonds, which theoretically reduces risk.
That’s not actually true. But because most investors who are looking at retirement investing want to feel like they are earning enough income every month, investment advisors push them into fixed income.
In point of fact, a retirement portfolio needs to be just as broadly diversified as a portfolio through the rest of your life. More and more mutual funds and ETF’s are starting to get a clue and are starting to tailor products that are more geared towards proper retirement investing.
While this still may mean a certain allocation of stocks and bonds, they are also seeking out a broader range of assets to invest in. Here are three suggestions for funds to consider for retirement investing. They may not be right for you, but the idea is to give you a sense of the types of funds that are out there, and the types of funds you may want to start looking at.
Diversified Funds for Retirement Investing: Vanguard Tax-managed Balanced Fund (VTMFX)
For the more traditional investor who is seeking very broad exposure to stocks, bonds, tax-exempt bonds, and who recognizes the need for some capital appreciation, I quite like the Vanguard Tax-managed Balanced Fund (MUTF:VTMFX). Not only does it have over 900 stocks, it has over 1800 bonds. The stock portfolio is broadly diversified with financials and technology gobbling up 41% of the assets.
You’ll recognize all of the big name companies in this fund. What you might not expect is that the top four holdings are all big tech names, which is not what you would expect in a retirement investing portfolio. The stocks include Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT), Amazon.com Inc. (NASDAQ:AMZN).
The bonds are also broadly diversified yet of high quality 90% of them are rated “A” or better. The average stated maturity is eight years, with an average coupon of 4.5%. Most of all, Vanguard doesn’t mess around very much with the portfolio. The turnover rate is only 9%.
Diversified Funds for Retirement Investing: TIAA-CREF Lifecycle Retirement Income Fund (TLIRX)
TIAA-CREF Lifecycle Retirement Income Fund (MUTF:TLIRX) contains a mix of both stocks and bonds, yet has a 17% stock waiting in greater European stocks, and a 13% weighting in greater Asian stocks. While the fund is waited a little too heavily towards large-cap stocks, with 69% of the portfolio of that size, I am please the 21% of the portfolio has medium Stocks, and the rest small or microcap stocks.
The smaller and microcap stocks tend to be less correlated to the overall market, and have a higher chance for more robust returns over time.
The bond side is also well diversified. 20% are government bonds, 17% are corporate bonds 16% are some form of securitized bonds. 77% of the bond assets yield between zero and 4%, 17% of the bonds yield between 4% and 6%, and 16% of the bonds reside outside the United States. The bond maturity. It is heavily weighted towards more short-term and medium-term bonds.
This Morningstar rated five-star fund has very attractive tenure annualized returns of 5.3%, with a standard deviation of only 7.2%.
Diversified Funds for Retirement Investing: Prudential Day One Income Fund (PDAJX)
Our last entry is a relatively new fund. The Prudential Day One Income Fund (MUTF:PDAJX) is a fund – of – funds, in which Prudential invests assets across a number of its other funds.
I very much like the diversification here. The fund holds other funds invested in TIPS, global real estate, broad market indexes, commodity strategies, international developing markets, small-cap and mid-cap stocks, large-cap stocks, and both conservative bond and total return bond strategies.
Over a year, so there isn’t that much data on it. We do know what is up 5.5% in the past year. During that year it captured 53% of the corresponding indexes upside and 71% of the downside. That’s not fantastic, but we are still very early in the fund’s history so it remains to be seen what happens over time.
I expect, however, with this kind of diversification that we should see attractive returns with reasonable standard deviations.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.