Financial planning expert Michael Kitces weighs in on whether higher bond and cash yields suggest that retirees and preretirees should hold more in those asset classes.
00:00 Introduction
00:28 Higher Yields and Asset Allocation
Credit-Sensitive Bonds
How Does Inflation Affect Asset Allocation?
TIPS and the Bond Market
Our guest for the video, “How Rising Yields Should Affect Asset Allocation for Retirees, Preretirees” is Michael Kitces. He is a financial planning expert and the head of planning strategy for Buckingham Strategic Wealth, co-founder of XY Planning Network and AdvicePay, and is the Chief Financial Planning Nerd for the advisor education platform Kitces.com and the Nerd’s Eye View blog.
What to watch from Morningstar.
3 Pillars of Financial Wellness
Why Bear Markets Can Be a Good Time to Invest
Planning to Retire Soon? Flexibility and Spending Count
Morningstar Investment Conference: Recession Risks and the Markets
Read what our team is writing.
Christine Benz
Follow us on social.
Facebook:
Twitter:
Instagram:
LinkedIn: …(read more)
HOW TO: Hedge Against Inflation
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
As bond yields continue to rise, retirees and preretirees must review their asset allocation and investment strategies to ensure steady income and manage risks. Rising yields may negatively impact the returns on fixed-income securities, which are often a crucial part of retirees’ portfolios.
Preretirees should consider a diversified portfolio, including a mix of bonds, insurances, and annuities, to provide guaranteed income streams. When fluctuations in the bond market affect the returns on fixed-income securities, the additional income can serve as an essential income source to cover living expenses and benefit from growth in equities and other investments.
Retirees could also benefit from adding inflation-protected securities, such as treasury inflation-protected securities (TIPS), that would provide a steady stream of income adjusted for inflation over time. As investment risks increase with rising yields, a comprehensive investment management plan with professional guidance can help retirees preserve their retirement nest egg.
In response to rising yields, retirees should also assess their risk tolerance levels and determine any necessary adjustments to their asset allocation. While some may be comfortable with higher exposure to equities and other growth assets, others may prefer to shift to lower-risk investments such as money markets and short-term bonds.
Moreover, retirees and preretirees should monitor the fixed-income securities and diversify their portfolios to mitigate against risks. In this regard, they should reduce allocation to bonds that carry greater risks of default such as high-yield corporate bonds or emerging market bonds. At the same time, they could increase their holdings of blue-chip stocks, dividend-paying equities and other growth assets.
Overall, rising yields should prompt retirees and preretirees to review and adjust their asset allocation strategies continually to ensure that their investments align with their risk tolerance levels and provide a steady stream of income. The right mix of investments and professional guidance can help retirees achieve financial security and a comfortable retirement.
Learn something each time I listen to either of you, thank you again.
I will forever be indebted to you you've changed my whole life continue to preach about your name for the world to hear you've saved me from a huge financial debt with just little investment, thanks so much Mrs. Debra Hindman
Not all inflation is equal. What is the inflation for what you are purchasing?
It was pretty duh…
Michael Kitces is always worth listening to. Thanks for having him on!
Is it just me or does it look like Mr. Kitces has lost a few pounds? He looks good!
I see a lot of passive investing gurus are saying for UK resident investors the barclays Bloomberg global bond index is a good fund to use as your bond portion of your portfolio. I think it's something like 60% government bonds and the rest investment grade corporate bonds across the mostly developed world. So largest portion US, Japan Developed Europe and UK, maybe some Australia and Canada. Do you think this is a good bond strategy. I think the overall duration of that index is about 8 yrs
Yes, very smart guy and I appreciate you putting him on. More discussions with Michael would be appreciated.
Does a bond tent expose one to Sequence of Price Risk in the same way that the stock valley mitigates against Sequence of Returns Risk?
Very enlightening. Great guest.
Great content. I've been wondering about this lately!