BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe.
How to Deploy a Big Cash Stake (part 2) A retired couple plots a strategy for getting back into the market.
Finding an appropriate stock/bond split is the first step for Bob and Janet. The pair are currently covering their monthly living expenses--with money to spare--thanks to a combination of Bob's consulting income and Social Security. Therefore, current income isn't a concern. Nonetheless, increasing their bond stake will bring added stability to their portfolio, thereby ensuring that it won't be at a low ebb when they begin tapping their assets. (Bob expects to leave his consulting position within the next few years.)
), but think it's too aggressive to serve as the couple's core fixed-income holding. The Loomis Sayles fund includes big doses of emerging-markets and high-yield (junk) bonds, both of which are prone to big fluctuations and sold off sharply in 2008. I'd recommend that they put the bulk of their fixed-income assets in a higher-quality bond fund like Metropolitan West Total Return Bond(MWTRX
) would also fit well here.) For further stability, I'd recommend that the pair keep a portion of their bond assets in a high-quality short-term fund like Vanguard Short-Term Bond Index(VBISX
).
Both the Loomis Sayles and Met West funds are truly active, meaning that the managers aim to go where the best opportunities are rather than sticking with a single market sector through thick and thin. That makes them a good fit for Bob, who's not content to sit on his hands when the market is choppy. Essentially, he's delegating the portfolio management he once handled himself to active managers.
I think the pair should extend that concept to their equity holdings. Performance at Dodge & Cox Stock(DODGX
) has been terrible over the past few years, but its deep, experienced management team exemplifies topnotch active management. For growth-leaning exposure with a similarly contrarian mind-set, it's hard to do better than the Primecap team. Vanguard Primecap Core(VPCCX
) features highly experienced managers as well as a rock-bottom expense ratio.
On the international side, I'd recommend that the Callahans sell their Latin America and China offerings and supplant them with broad-based international funds. The managers of Tweedy, Browne Global Value(TBGVX
) use a prudent, value-oriented approach and attempt to deliver a positive return through all market environments. That fund's managers hedge all of the fund's currency exposure, meaning that if foreign currencies appreciate versus the dollar, the fund doesn't participate. To help give the Callahan's portfolio at least some exposure to foreign currencies and developing markets, I'd recommend a smaller stake in an unhedged foreign-stock index fund like Vanguard Total International Stock Market Index(VGTSX
). Because that fund includes some energy and basic-materials exposure, I'd cut loose their dedicated natural-resources fund.
Almost as essential as reshaping their holdings is the strategy that Bob and Janet employ as they do it. Rather than make these changes all at once, I'd recommend that they use a dollar-cost averaging strategy. By that I mean that they'd put equal amounts into the new funds for each month over the next 12 to 18 months. That strategy reduces the chance that they'll put a lot of money to work only to see stocks fall further still.
Partner Market Place
Stuff to look at
Yield and Income Newsletter: A must have for income investors. subscribe NOW
Income Security Recommendation January 2013 Issue.
Keep up with monthly, in-depth coverage of fixed income market strategies, commentary, and insights as seen by our sources. Sign up for the free BondsOnline Advisor now!
