The Bucket List — For Investing, That Is

The Bucket List — For Investing, That Is

Aim for different pots of money, with different time horizons and risk levels.

Retirement brings with it more leisure time, fewer deadline pres- sures and for many less of a need to worry about their financial future if they plan right. To help them, financial advisers or robo-advisers — automated advisories that have proliferated in the last decade — often add peace of mind.

“Many questions pop up when you retire,” noted Nick Holeman, a senior financial planner at Betterment, an online investment ad- viser service that provides investment advice and fully automated investment management. “For instance, people want to know when they should begin withdrawing Social Security, and those with multiple accounts — like a Roth IRA, traditional IRA and a regular account — want to know which to draw from first because they are each taxed differently.”

He pointed out that although most people begin receiving their Social Secu- rity checks at the age of 67, some people continue working “not because they need the money but because they have a passion” for what they do and because people today are healthier and tend to live longer.

Holeman said one way retirees might plan for the future is setting up “dif- ferent buckets of money for different purposes: an emergency fund, a fund that would help the grandkids pay for college, etc. The funds should have different time horizons and different risk levels.”

The stellar stock market performance last year in which there were 15 months of positive returns “was very rare,” and over the next few years ana- lysts foresee bonds on average making about 2-3 percent per year, U.S. stocks increasing about 6 percent and overseas stocks rising around 7 percent,” said Jeffrey Wiesenfeld, a principal at Bernstein Private Wealth Management. “Blended portfolios will earn in the area of around 5 percent — it’s hard to see them exceeding 5 or 6 percent.”

“That is where a good manager can provide a good menu of alternative investments that make sense,” he added. “If a person puts 25 percent of his money in alternatives, he should know that they are not as liquid as stocks and bonds. Some alternatives are real estate funds, hedge funds and mortgage funds. Sometimes they have multi-year tie-ups and so you are paid more in return for less liquidity. One should be careful investing in them — you should know the firm is competent in that area, that it works off a good research platform and allocates intelligently and prudently. You have to have a detailed discussion with your adviser, who should have produced a good plan to understand how much liquidity you need.”

Because alternative investments tie up money as long as eight years, many of them would “not be suited for retirees,” Wiesenfeld observed.

He also stressed that money that is needed for short-term needs — such as the rent or mortgage, tax payments, to purchase a house or a car or to pay for a wedding or bar mitzvah — should not be put in the stock market because “it is subject to short- term volatility.”

Thus, money for these items should be kept in a savings or checking account even though they don’t pay much interest. Some advisers suggest that one, two or three years of spending should be kept in cash, but Wiesenfeld said he recommends that “people not keep more than six months of expenses in a checking account.”

Some advisers suggest that after putting away cash to pay for known forthcoming expenses, retirees should develop a portfolio of conservative, high-quality bond funds, a fixed annuity and tax- free municipal bond funds that would generate sufficient money to cover expenses for the next nine years.

A third and smaller portfolio might include riskier investments, including alternative investments, some junk bonds and emerging- markets debt.

In calculating the percentage of your savings that should go into each of these portfolios, one rule of thumb suggests you subtract your age from 110 and put that percentage of your investments in the stock fund, with the remainder in the bond fund. For example, a 70-year-old retiree would put 40 percent of his savings in stock funds and 60 percent in bond funds.

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Wiesenfeld emphasized that the key to investing is discipline.

“You must stick to your investment plan and keep aside your short-term money,” he said. “Those in a long-term plan are in solid investments and ignore the noise in the markets and stay invested.”

Panicking, selling at the wrong time, not knowing when to get back in, or running after another money manager — a practice called “chasing performance” — are the wrong ways to invest.

“If you do that, you will never catch a rising star,” Wiesenfeld said. “Every investment plan will have great years, good years and not-so-good years. If you run away from the not-so-good years for someplace else, you may arrive there when they are having THEIR not-so-good years.”


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