Reiner: Beyond Bonds For Safe Retirement

February 25, 2014 We saw a huge move last year toward shorter duration, but this year we’re seeing some flows back in the longer-dated end of the curve. What’s an investor to do about exposure to duration today?

Reiner: I think the shock may be over. Rates are going to rise, but I may get compensated for the additional yield I get. That may be enough compensation to offset the fact that rates are going to yield from, say, 3 to 3.25 percent, and that’s OK. If it only moves 25 basis points, you get compensated with the extra yield you would get with longer-duration bonds.

Maybe people think the dust has settled. We now are accepting that tapering is going to happen, and rates may creep up, but they may not spike up, because a spike is what would kill longer-duration debt. But again, I’m not suggesting that individual investors be overly allocated to longer-term duration bonds. That may be more of a trade. What would you say is crucial for investors to keep in mind when it comes to income?

Reiner: If you’re just looking at having a fixed-income allocation in your portfolio, you can probably do just as well going to Vanguard and buying a couple of index funds and calling it a day. I really believe in keeping it simple, and keeping costs low. That’s going to likely yield your highest probability of success long term.

But on the income side, I would say that as soon as your life starts to transition away from accumulation to distribution, focus on income. Focus more on the real cash flow and less on the day-to-day value of a portfolio.

If you’re going to retire, and your retirement is going to depend on the value of your portfolio day to day, you’re going to live a very volatile retirement. However, if you can construct a portfolio that generates you a yield month in and month out, no matter what, that’s what you can depend on. That’s what supplements your Social Security and pension income. It’s a sleep-well-at-night way to live.

Get away from performance. Look at whether you got the same $5,000 a month on that portfolio this month that you did 12 months ago and 24 months ago. Yes, the value may be up or down 10 percent, but theoretically, income stays consistent. I suggest the way to do that is by diversifying your income portfolio into a multi-asset class approach.



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