24 Jul What changes should I make to my portfolio?

Q. I’m 50 and I don’t plan to retire until 65. I’m not afraid to take some risk. I have all my investments in index funds: 50 percent in a large-cap, 25 percent in a small cap and 25 in international. I want to keep things simple and not have a dozen different funds. Should I make any changes?
— Investor

A. Your age isn’t the only thing to consider when building your portfolio.

It’s important to take your overall financial picture, along with your time horizon for investment and your ability and willingness to tolerate risk into account.

And there’s more.

“Your current and projected income and investable assets, as well as your anticipated expenses in retirement, are some of the important variables that should be reviewed on an on-going basis as part of a dynamic financial planning process that can serve to help you determine how aggressive you may need to be with investing your assets in order to meet your long-term objectives,” said Charles Pawlik, a certified financial planner and chartered financial analyst with Beacon Trust in Morristown.

He said given that you are not afraid to take on risk and that you are currently allocated 100 percent to equity investments with high concentrations in a few different asset classes, a salient question for you is how much risk you need to take on in order to meet your goal of retiring at age 65.

It may be possible that you are taking on more risk than needed to generate the long-term average annual rate of return you’ll need to grow your asset base to fund your retirement needs and keep up with inflation, Pawlik said.

“You may want to consider whether or not some level of bond exposure may be appropriate in order to help dampen the volatility in the equity markets and serve as a ballast for your portfolio during down markets,” he said.

Pawlik said that while index funds are a cost-effective way to attain broad-based exposure to equity markets, you may also want to consider incorporating active strategies into your portfolio. These could have the ability to be nimble in the midst of volatility or a downturn in the equity markets, he said.

“You may also want to consider incorporating emerging market equity investments into your portfolio if you do not presently have meaningful exposure through your allocation to international investments, in order to further diversify your equity exposure,” he said.

Remember that adjustments to your portfolio are not a one-shot deal.

Pawlik said a well-diversified asset allocation that is managed on an ongoing basis in the context of your overall goals and financial picture can serve to help you obtain the average annual rate of return needed to meet your goals while minimizing the risk associated with investing to do so.

If you want ongoing help, consider hiring a team made up of qualified financial planner and an investment professional who can assist you with crafting a long-term plan and overall investment strategy that can serve to meet your needs over the long term.

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This story was originally published on July 24, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.