(Yahoo!Finance) - Everything in moderation. There’s something to that advice for building a retirement portfolio, according to one expert.
"When you hear about investments, people's mindset goes immediately to stocks," Mitlin Financial founder Lawrence Sprung, who is also the author of "Financial Planning Made Personal," recently told Yahoo Finance Live. "And it doesn't have to just be stocks. You want to build out a balanced portfolio."
That includes assessing your risk tolerance and time horizon and diversifying your portfolio with stocks, less volatile investments like bonds or total stock market index funds — mutual funds that track the total returns of the entire US market — and perhaps a dash of alternatives.
In fact, with the market uncertainty of the past year or so, it's safer to be as diversified as possible.
"It's really up to each individual to build out an asset allocation that is right for them," Sprung said. "That's going to include stocks, that's going to include bonds. And within stocks, that may include several different types of stocks, large-cap, mid-cap, small-cap. Bonds may include government bonds, international."
You might also consider making some new retirement plan contributions into an alternative investment, like a real estate investment trust or a mutual fund that buys them. Commodities might be a good place for an inflation hedge, he added. "Real estate is another good option."
How much in stocks?
Owning stock is essential for those who have a long-term horizon, say, two decades, until they plan to start dipping into their savings. And the standard piece of advice has been to take 100 or 110 minus your age and that’s the percentage of your retirement savings that should be invested in equities.
For a 57-year-old, for instance, her retirement account might be 65% in stocks and 35% in bonds — a breakdown that suits her age if she has a moderately aggressive risk tolerance.
That’s to take advantage of the upside potential growth over time that stocks typically deliver when compared with fixed-rate options such as bonds, money market, or certificates of deposit.
But when the stock market is on a tear, it’s tempting to go a bit bonkers. Discipline is critical. When you let the stock portion of your portfolio get overweighted, it makes your savings vulnerable when the market turns south.
Other income streams
There are myriad channels you may have to tap for retirement income from a traditional pension to your employer-provided retirement plan, such as a 401(k), to income-producing real estate properties or a small business you own. Whatever that may be, it's something that folks should start considering and more importantly planning for.
While rental properties could be part of your retirement plan, many retirees don’t want the hassles of managing that kind of investment.
"If you're not somebody who wants to be that owner-operator, you could look at real estate investment trusts, where you're going to own a piece of a portfolio and perhaps get an income stream," Sprung said. "There's really a flavor for everyone, it's just a matter of finding what's right for you in terms of what your goals are, your risk profile, and what your time horizon is."
Of course, there are plenty of other alternative investments that people dabble in, but they are often riskier.
"I don't think the average person has the ability necessarily to invest in a wine collection unless they're doing it in some kind of private placement and group platform," he said. "Crypto obviously is a little more accessible. Crypto is something that they can in most cases easily convert to cash, assuming that crypto is still around and viable."
Social Security has always been a major income stream that retirees rely on. But Social Security’s reserves are projected to run out in 2033 if Congress doesn’t act. At that point, Social Security will only cover 77% of full benefits.
It’s a big problem, and one that Capitol Hill is not yet acting on, which raises the question of whether millennials and Gen Zers should expect to lean on Social Security as income in retirement.
"The reality is the vast majority of folks who are retiring are really relying heavily on Social Security," Sprung said. "It's important to the fabric of the country to maintain that status of Social Security. So I don't think they're going to get rid of it, but they are going to tweak it."
"So it's going to be very important for people like millennials to make sure that they're positioning themselves in a way to have other income streams."
By Kerry Hannon · Senior Columnist
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich."
