Ann and I both had been contributing to our company 401k plans for some time but really did not have a coherent plan to manage our retirement dollars. So we were anxious to have someone help us when I retired in 1998. Back then financial analysts seemed to come out of the woodwork. These folks tried to create an exotic mysticism around the way that a retirement portfolio should be developed and managed.
After interviewing several companies we settled on one small business, run by Christians, that was recommended by a friend. These guys came up with a plan encased in a nice binder and seemed really smart. We were gung ho on the plan until we began to scrutinize it and discovered that five annuities were buried in their recommendations. Annuities are great for the people who sell them but not so much for those who buy them.
Since that day I have been convinced that I do not need someone to manage my retirement portfolio. There is a lot of educational information out there and, if you use mutual funds in your 401k and IRA vehicles, it is possible to manage your own retirement portfolio. Here are a few general principles that I have developed over the years:
- From the image on the right (click to make larger) you can see that there are many types of portfolios out there. To discern my target I determined the amount of risk that I was comfortable taking which equated to a moderate to conservative portfolio.
- To keep my sanity I diversify not only across stock and bond funds but across mutual fund managers. That means that I will not entrust a lot of money to one mutual fund.
- I use analyst recommendations when I pick a fund. I like the Morningstar ratings and tend to stay away from low rated funds.
- I tend to favor value oriented funds over those of the growth variety. These tend to be a bit more stable over the long haul.
- I rarely pick a fund that has an expense ratio greater than 1%.
- I never pick a fund that has any fees or are front loaded funds.
- I try to stay away from being over invested in one company or industry sector. Means I check mutual funds' top holdings.
- I like to have enough liquidity to sustain us for a few years. Advisers do not like it but it helps me sleep at night. :)
For me, the key has been to view my portfolio as an investment strategy rather than an opportunity to regularly buy and sell stocks and bonds. Consequentially I do not buy and sell very much. I tend to regularly (a few times a month) check my portfolio but actively manage it only it a few times a year. This seems to reduce my stress level a bit. :).
I'd be happy to share more. Feel free to comment below or send me an email if you have any questions.