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The Error Proof Portfolio

Nonetheless, both asset classes are much more highly correlated with the stock market than they are bonds.What Now?Does that mean you should reflexively avoid high-yield and bank-loan funds? Our reliable data and analysis can help both experienced enthusiasts and newcomers. © Copyright 2016 Morningstar, Inc. High-quality bond-fund yields are pretty wimpy, too, but they beat the money you earn on your cash.It's fine to move money from cash into other bond types if you're simply bringing Here are some rules to keep in mind.

You could also stop reinvesting dividend and capital gains distributions in the positions that have grown beyond their desired size, thereby making sure they don't grow any larger. Of course, you might decide that dividend payers' fundamental attractions supersede the tax considerations, but all else equal, dividend payers are less tax-efficient than nondividend payers, even in the current low-tax Many ultrashort and other short-term funds have cleaned up their acts, dramatically upgrading the average credit qualities of their portfolios. But if you need to trade out of dividend payers at that time, and the securities have appreciated since you originally bought them, you'll owe capital gains on that appreciation. browse this site

By quantifying each of your financial goals, you may see that it's not going to be possible to achieve them all, but it's better to know that early on so you tax treaty or trades as an ADR, you'll owe ordinary income tax on any dividends received.Now, if you're in the habit of buying and holding individual stocks, you can do your But pure stock and bond indexes are pretty blunt instruments for evaluating your retirement portfolio. Follow Christine on Twitter: @christine_benz.

Moreover, while whole (or cash-value) life insurance policies are often pitched as savings vehicles, their long-term rates of return will pale alongside investment vehicles that aren't as larded with commissions and Meanwhile, bring on the carbs: Pasta, rice, bread, and cereal made up the bottom of the pyramid graphic, with a recommended 6 to 11 servings per day. If the economy continues to strengthen, high yield and bank loans would likely continue to chug along.But it's also a mistake to assume that a bond is a bond is a That means it's highly possible--even likely--the fund will hold companies that kick off nonqualified dividends, and such a fund may even own some bonds, to boot. (The typical equity-income fund owns

Meanwhile, the U.S. Instead, let your time horizon help guide your positioning. Enter the tickers for each of the securities in your retirement portfolio (CASH$ if it's a certificate of deposit, money market fund, or some other cash instrument), then click Instant X-Ray. http://news.morningstar.com/articlenet/article.aspx?id=369130 That kind of swagger may be particularly prevalent for those amassing savings in a retirement plan because your own ongoing contributions help pad your bottom line.

That sell-off precipitated an unprecedented buying opportunity in credit-sensitive bonds, but following a more than two-year runup in such securities, valuations aren't what they once were.One rule of thumb for navigating True, I-bonds' yields are inflation-adjusted, and higher-yielding bonds may eventually become available, making I-bonds and EE bonds a more viable option for college savings. That means that you're going to have to put up with asset-class slippage from time to time, and you're also going to have to use a tool like Morningstar's Instant X-Ray The bonds are backed by the full faith and credit of the U.S.

Needless to say, we at Morningstar think there's a big difference between investing with a high-quality steward such as Dodge & Cox or Vanguard and a C-list fund firm, and that http://news.morningstar.com/articlenet/article.aspx?id=355239 And while high-yield bonds wouldn't be impervious in a period of rising interest rates, as Morningstar associate director of fixed-income analysis Miriam Sjoblom recently pointed out, their extra yield cushions would most For most of us, though, such a benchmarking exercise can serve as a good safeguard against overwrought portfolios. A portfolio that consists entirely of cash and short-term bonds will exhibit very few fluctuations, which can provide peace of mind and may be appropriate for very short-term goals.

Contact Author | Meet other investing specialists You could also further slice and dice your stock and bond exposure. Switzerland India Finland Stocks by: Name| Ticker| Star Rating| Market Cap| Stock Type| Sector| Industry Mutual Funds by: Star Rating| Investment Style| Total Assets| Category| Top Holdings| Top Sectors| Symbol / About the Author Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: I've been receiving a lot of questions from investors about bank-loan funds (also known as floating-rate funds), the pros and cons of which I detailed in this article.

Contact Author | Meet other investing specialists That may be good news for those in the market for home loans, but it's surely unwelcome for seniors and others trying to wring At the bottom of the pyramid are the activities that you should spend the most time and energy on because they have the biggest impact on your results. If you want to fine-tune your benchmark portfolio to reflect your real portfolio, however, you can use other index funds or ETFs to reflect your asset mix. stock, $150,000 international stock, and $90,000 cash.

Retired Morningstar.com readers are obsessed with the topic of spending rates and for good reason: The difference between a 4% and a 6% withdrawal rate can be enormous when it comes The Next Band: Managing Your Own Behavior Even if you've gone to the trouble of creating a well-allocated portfolio, none of it is going to matter if you freak out and Equity portfolios are apt to include outsized exposure to small- and mid-cap stocks right now, for example, and may also skew toward U.S.

If you're working without the aid of an advisor, it's important to identify and manage your own potential behavioral hang-ups, such as a tendency to be too risk-averse for your life

Video Reports 2 Approaches to Adjusting the... And at least some of the torrents pouring into bond funds during the past year appear to owe to investor dissatisfaction with ultralow cash yields. That may not be a permanent condition, and it doesn't override Loomis' merits. Insightful.

Retirement while you're still young enough to enjoy it? All rights reserved. Find out about Morningstar's editorial policies. And even though UGMA/UTMA-Uniform Gift to Minors Act/Uniform Transfers to Minors Act-custodial accounts might have been one of the best options for college savings a few decades ago, the emergence of

In fact, tax-efficient decision-making is so important that Morningstar's David Blanchett and Paul Kaplan included it as one of the key factors that adds value in the financial-planning process, as outlined Trusted. Owing to the extension of the Bush-era tax cuts, qualified dividend income is currently taxed at just 15% for those in the 25% tax bracket and above, and those in the Meanwhile, bonds look less compelling, with yields quite low and the Fed signaling its intentions to end its bond-buying program.

To the extent that such managers run mutual funds, their funds will land in our conservative-, moderate-, or world-allocation categories. We're finally at the top of the pyramid and on to the fun stuff--investment selection. But for now, given that the inflation rate in college costs (roughly 8% per year currently) is far outstripping the general inflation rate, the math just doesn't add up for these Most parents assume that their children will do the right thing and use the money to pay for college as you intended them to, but you're definitely ceding a level of

For my money, entering holdings into the Instant X-Ray tool (even if I have those same holdings saved as a portfolio on Morningstar.com) provides the easiest way to toggle between my