The best investment portfolio for these times is the one you can live with
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In another two weeks, it’ll be the end of the financial quarter and statements from investment companies will start coming for those in a position to have retirement savings.
What if you need your money in two years, 10 years or 25 years? It makes a huge difference about how to think about this coronavirus quarter.
Veteran investor Barry Ritholtz, chairman and chief investment officer of Ritholtz Wealth Management, makes sense of this moment with a quick tip on how we should be thinking about things.
“In fact, those are three very different portfolios,” Ritholtz told Marketplace’s David Brancaccio. “If you have to, have to, have your money in two years, and you want to take very little risk, you’re going to be in a combination of money market funds, and some high quality corporates. And that’s a very low risk, very low return portfolio that hopefully just keeps ahead of inflation.
“Historically, we rarely see 10 years go by without a positive return. So a portfolio that makes more sense for a person who’s going to need that cash in a decade is going to be something like a 60/40 classic portfolio, that’s 60% broad market indexes and 40% bonds. You should see a better-than-inflation return in most 10 year periods.
“And then 25 years — 25 years is a long time in the stock market. And you would want to be pretty aggressive, either 70/30 or 75/25 stocks and bonds. The reason I never recommend people go all stock, even though that portfolio would do better, is exactly because of times like this, or ’08/’09, or 2000. You know, the optimal portfolio isn’t the one that returns the most money, but it’s the one that you can live with. And I can guarantee you that people who are in all stock portfolios, they’re having a hard time looking at a market that was hitting all time highs a month ago, and now is down 30% or more. We’ve seen $20 trillion in wealth disappear.
“Now, it’s only temporary. My best guess is once we get through the coronavirus, it’ll come snapping back. But if you’re up all night stressing over it, and the only way you relieve that stress is selling, well, then you’re not going to participate when the market recovers. You have to take the good with the bad, and this too shall pass.”
COVID-19 Economy FAQs
How are Americans feeling about their finances?
Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.
Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.
Are people still waiting for unemployment payments?
Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.
What’s going to happen to retailers, especially with the holiday shopping season approaching?
A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.
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