"We do asset allocation according to performance and risk rather than by asset class," Bell says. He adds that he's been predominantly invested in overseas equities during the past five years, though he thinks that this run might be coming to an end.
Tom Sowanick, chief investment officer at Clearbrook Financial in Princeton, N.J., takes an endowment approach to portfolios, combining a budgeted bucket for cash-flow needs with a set of long-term investment strategies. And that means moving beyond the traditional big three (stocks, bonds and cash) to include a larger chunk of alternative investments such as fund-of-funds, private equity, commodities, tax-aware managers and Treasury-only money market funds.
"We can't live off of fixed-rate portfolios because we face so many variable costs," says Sowanick, whose firm builds separately managed accounts for registered independent advisors. "Longevity is a variable cost."
Ben Franklin, principal at Franklin Financial Planning in Urbana, Ill., says jittery markets are causing angst among some of his clients, most of whom are middle-market folks with $250,000 to $500,000 in investment assets. To address that, he uses a split-annuity concept that places money in different time increments to mitigate short-term volatility and generate long-term growth.
The five-year increment aims to meet near-term cash needs and uses single-premium immediate annuities with fixed five-year terms and combines these annuities with CDs and bond funds. The five- to 15-year increment is a balanced portfolio; for this, Franklin likes Morningstar's managed portfolios for their asset allocation and risk aversion. For money in the 15-year-plus increment, Franklin's ideal portfolio is a mix of 75% equities, 16% to 17% commodities and 8% to 9% real estate. Overall, the three increments are generally dispersed in a ratio of 25-50-25, respectively.
As for headlines alluding to America's so-called retirement crisis, Franklin believes there's an element of truth to it. He also sees it as an opportunity for people to get their act together. "Let's call it a wake-up call," he says. "There is plenty of time for people to address the problem, but if they don't they'll face the most difficult financial decisions of their life."