Should You Be Avoiding Mutual Funds?

Do you have a personalized investment plan, or, like a lot of people, have you basically been sold a package of mutual funds?  You may have heard the rule of 100, where you take 100 minus your age and you get a certain percentage that you would have at risk.  The idea behind this rule is that the older you are, the less risk you should take.  For example, if you are 65 years of age, then roughly 65% of your portfolio should be in safer investments, and the balance of 35% could potentially be in more risky investments.This rule has worked well for a number of years, but a recent report has helped us come up with some different ideas. 

Putnam Institute, a mutual fund family and primarily risk based company, put out a report titled, Optimal Asset Allocation in Retirement:  A Downside Risk Perspective. In their executive summary, they shared their findings on how much risk you should be taking during retirement. Putnam, a company that pushes mutual funds for stocks, stated that optimal equity allocations, meaning how much money you should have in the stock market if you do not want to run out of money in retirement, should be between 5% to 25% in stocks, depending on your circumstances.  So, if we look back at our equation, they are saying the rule of 100 is way too aggressive. If you retire when you are sixty years of age, Putnam states that instead of 40% at risk, you should have between 5% to 25% at risk.

When you look at this information you can’t help but wonder, could you be taking on more risk in your portfolio than you should be? Maybe it is time for you to have a personalized investment plan for your unique situation, one that you are comfortable with. If you would like to visit with us to review your retirement plan, give us a call at 775-853-9033. You can also tune into Redefining Retirement this Sunday at 5:30 pm, where we will discuss the 5 reasons why having a package of mutual funds may not be the right investment plan for you.