(MoneyWatch) Today’s investors face unusual challenges, as low bond yields and lower expected stock returns mean the returns investors can expect from their portfolios may not be sufficient to meet their goals. Smart investors know that to minimize the risk of their plan failing they must change their plan. Typical options that investors consider to reduce that risk include:
Lowering the return goal which means lowering your future spending plans
Curtailing current spending to increase savings
Extending planned retirement date
Taking more risk within their bond allocation and/or increasing their stock allocation
The first three options are all prudent ones. However, the last one isn’t likely to be a prudent choice. Taking increased risk on the bond side hasn’t been historically well rewarded, and 2008 should have taught investors the dangers of having too high a stock allocation. With that said, there’s a prudent option to increase the expected return of a portfolio available to most investors — shift some of the allocation to domestic stocks to international stocks.
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