Morningstar's 2015 Portfolio Makeover Week
Dec. 14-18: Christine Benz helps investors check their progress, assess allocations, target holes and overlap, and upgrade their holdings.
Portfolios have a funny way of getting away from their investors. Accounts and holdings pile up. Allocations fall out of whack (if they were even "in whack" in the first place). And investors' lives change, meaning a portfolio can be perfectly suitable at one life stage but no longer fit the bill in another.
At Morningstar.com, we've developed our annual Portfolio Makeover Week to help showcase real-life strategies for improving portfolios. Our 2015 makeovers, which will run Dec. 14-18, feature the "before" portfolios of actual investors at various life stages and asset levels. Morningstar's director of personal finance Christine Benz will provide suggestions for improving those portfolios, touching on asset allocation, asset location, and in-retirement withdrawal rates, among other factors. (In case you missed them, you can also check out Christine's 2013 and 2014 makeovers.)
You can find a summary of each makeover below. Stay tuned all this week to see the full makeovers and for more ideas on how you can make your own portfolio upgrades.
Note: Names and other potentially identifying details in the following makeovers have been changed to protect the investors' privacy. Makeovers are not intended to be individualized investment advice, but rather to illustrate possible portfolio strategies that investors should consider in the full context of their own financial situations.
Monday, Dec. 14 | Jeff and Jennifer: Can These Bogleheads Retire?
"The Great Recession was a wake-up call for us," Jeff, 58, wrote in his email requesting a portfolio makeover. He and wife Jennifer, 56, shuttered their small business following the financial crisis and got to work repairing their household balance sheet. They returned to positions in their previous industries, rebuilt their retirement savings, and even helped finance college for their two sons.
They also honed their investment approach, focusing mainly on index-tracking mutual funds and adopting a hands-off, "buy, hold, and rebalance" strategy for portfolio oversight. Five years and a strong recovery later, their portfolio has made great strides. They've set their sights on retirement within five to seven years, but would like to get a second set of eyes on their total plan. Can they balance an early retirement with potential health-care and long-term care outlays and a desire to leave assets to their sons? >> Click to see the full makeover
Tuesday, Dec. 15 | Susan: A 69-Year-Old Aims to Resolve Her Portfolio's Identity Crisis
An avid stock investor throughout her lifetime, Susan has amassed a healthy portfolio of individual equities, many of them high-growth and high-risk. "I've owned stocks since I was in my 30s and went through the two downturns and bad advice from brokers. So I decided to learn as much as I could about various stocks and create and manage my own portfolio."
Today, Susan's portfolio of individual equities suggests a confident and risk-tolerant investor. But she also has more than half of her portfolio stashed in cash, and she's reticent to get that money invested. "While I know this money should be making money for me," she wrote, "I'm also concerned about market volatility." The market's ascent since 2009 also gives her pause. "I would like to retain the value of my holdings and not go through another market downturn, as I don't have the time or ability to rebound again." >> Click to see the full makeover
Wednesday, Dec. 16 | Grant and Lori: Couple Aims to 'Simplify This Mess' and Get on Track to Retire
A 64-year-old government transportation worker, Grant is looking forward to retirement in about three years. His wife Lori, a 53-year-old school principal, plans to stay on the job for at least 10 more years.
While the two maintain separate portfolios, Grant manages both--and he wishes his could look more like Lori's. While not exactly svelte, her portfolio includes index funds that provide broad market exposure. Grant's portfolio, meanwhile, slices the market a bit more finely. "I would really like to simplify this mess," he wrote.
Grant says he would also like assistance in teeing up his portfolio to supply in-retirement income. He likes the bucket approach to retirement portfolio planning and would be interested in adopting it for his in-retirement strategy. Additionally, he's keen to get a second opinion on the viability of his total retirement plan. Although he has a small pension and will receive decent benefits from Social Security, he'll need to rely on his portfolio for a portion of their living expenses. Given his wife's longer life expectancy, he wants to ensure that his retirement withdrawals won't jeopardize their portfolio's ability to last. >> Click to see the full makeover
Thursday, Dec. 17 | Alex and Jody: Young Family Aims to Kickstart Savings Program
Alex and Jody, both age 33, have had an action-packed few years. They got married in 2010, and they welcomed a son in 2012 and a daughter in 2014. Alex is pursuing a career in the U.S. military, while Jody left her career in the technology industry to become a stay-at-home mom.
Alex has just begun maxing out his contributions to the Thrift Savings Plan, the equivalent of a 401(k) plan for U.S. government workers. But the bulk of this couple's assets are parked in cash--in savings and checking accounts--earning next to nothing. They also have an additional $10,000 in an old 401(k) plan from one of Jody's previous jobs.
College savings is on this couple's radar, but "our main goal is retirement planning," Alex wrote. They'd like advice on getting their assets invested to help achieve those objectives. >> Click to see the full makeover
Friday, Dec. 18 | Norm and Peggy: Transitioning a Portfolio From Growth to Retirement Income Mode
Norm, a 65-year-old corporate finance professional, says he has already started "the wind down toward retirement." His wife Peggy, a 61-year-old math teacher, won't be far behind him. They'll be able to draw on Norm's small pension, as well as Peggy's larger pension, for a portion of their in-retirement income; Norm's Social Security benefits will kick in an additional component of their needed in-retirement income.
But the couple will also be relying on their $1.2 million portfolio for a portion of their income, and that's what drove their request for a makeover. Their portfolio features a number of Morningstar's favorite funds, including Oakmark International (OAKIX) and Fidelity Small Cap Discovery (FSCRX), but they wonder whether their impending retirements necessitate a new portfolio mix. "We need to know how to convert our investments into those that produce more income rather than the potential for investment gain," Norm wrote. >> Click to see the full makeover