Retirement Investments: Right Expectations at The Right Time

09/23/2011 Share 0 comments

Global stock market has entered a bear market, based on a Bloomberg report Global Stocks Drop 20% Into Bear Market as Debt Crisis Outweighs Profits. For many investors who are managing their retirement investments such as 401K, it is a high time to review and set a proper expectation.

Chuck Jaffe at MarketWatch.com reported that Rob Arnott of Research Affiliates told financial advisers to reshape their return expectations dramatically for the coming decade and beyond.

Arnott outlined the following:

He further suggested "investors will need to be increasingly tactical, trading into markets that are unloved and undervalued and being prepared to leave markets that have gotten overheated, and considering alternative strategies that can supplement the baseline stock and bond market returns."

Given an extremely high possibility that we are entering the second recession, investors should have an investment plan in place for their retirement investments. In addition to Tactical Asset Allocation(TAA), one should stick to

1. Diversification: not only this reduces risk, it also gives you more opportunities to extract returns elsewhere. In addition to stocks (SPX) and bonds (AGG), asset classes such as Real Estate Investment Trusts (REITs) and Commodities including precious metals (Gold GLD)
2. Tactical or Alternative strategy driven ETFs or mutual funds. In this area, however, investors should again have a solid fund selection algorithm to weed out under performing funds or strategies.

However, a proper risk tolerated strategic asset allocation portfolio should always have a place in one's overall portfolios (only a portion instead of all in such a portfolio). Periodically rebalancing will allow investors to capture the bigger future return of undervalued stocks or other asset classes.

See Six Core Asset ETFs for an example of diversification and tactical asset allocation. It uses only 6 diversified major asset ETFs.

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