Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 9, 1990 TAG: 9007070110
SECTION: BUSINESS PAGE: A5 EDITION: METRO
SOURCE: MAG POFF BUSINESS WRITER
DATELINE: LENGTH: Medium
The ratios may change, but diversification is still the key to allocating your assets.
That means, according to financial planner John C. Parrott II, "do not put too much money any one place."
Parrott, who is with Wheat First Securities in Roanoke, said the cardinal rule for retirees is preservation of assets.
The yield from those assets ranks second.
"People get those mixed up," Parrott said.
J. Gregory Tinaglia of Investment Management Corp. sees handling finances as "a continuum. I don't think retirement is a dramatic, shock-type experience."
People should undergo a fiscal exam every year as they do a physical one, he said. It's a lifetime process.
Retirement, however, calls for a special look at both assets and liabilities, he said. What are your short-and long-term debts and how much interest are you paying? What do you own and how much will it earn for you?
You may have an annuity that locks in a defined payment for life. On the other hand, "if you have a chunk of funds, you want to get conservative."
If you have limited assets - and thus little margin for error - he advised putting most of the money into fixed-income securities such as certificates of deposit and Treasury bills.
The caveat is inflation, Tinaglia said. That requires selecting investments that can produce growth that keep pace with the rising cost of living.
People retire earlier and live longer, Parrott said. "Inflation will have a lot more to say" about how retirees allocate their money.
Tinaglia, who is a money manager, said he has to rein in most of his clients as they approach retirement. He said they are accustomed to putting money into speculative growth stocks.
On the other hand, Dean Penley, manager of the Roanoke office of J.C. Bradford & Co., said most people are completely oriented toward income investment. That trend, he said, seems to be growing.i
People think inflation is under control because in recent years it has risen by 4 to 5 percent, Penley said.
But, he pointed out, that seems mild only when compared with 13.3 and 12.5 percent increases of the late 1970s.
Consumer prices climbed only about 2 percent a year in the 1950s and 1960s, Penley said, and price controls were slapped on when the increase reached today's level.
For many people, retirement means planning finances for a period of about 20 years, Penley said. That means inflation will erode their standard of living if all their money is in CDs and bonds.
Retirees need "a little possibility of growth to protect your buying power," said Richard Wertz, assistant manager at A.G. Edwards and Sons.
At the same time, he said, you look for safety in retirement. "You don't take much chance."
The investment advisors agreed that, as a general rule, 70 to 75 percent of a retiree's assets should be in fixed income securities. About 25 to 30 percent should be in equities.
Tinaglia said retired people shouldn't take risks with the largest portion of their portfolio.
But even then it's wise to diversify. He said some money should be in bank certificates of deposit and some in Treasuries.
The value of Treasuries fluctuates on the secondary market. He advised buying short-term Treasury bills which offer the greatest stability.
Parrott said the fixed-income portion should be tailored in light of tax ramifications and the need for liquidity.
He advised taking advantage of the "ladder effect" by purchasing consecutive short-term maturities.
If you have $50,000, for instance, you would buy five $10,000 bonds with one maturing in each of the next five years. Not only would some money always be near maturity, Parrott said, but also the investment is protected against swings in interest rates.
Also consider mutual funds of Ginnie Mae or government-backed bonds, Parrott said, but look carefully at the fund's underlying portfolio.
Stay in "an AA or AAA mentality," Parrott said. Accept a lower yield as a trade-off for sound bonds.
For the 25 to 30 percent equity side, Wertz suggested utilities, blue chip stocks such as General Electric and Norfolk Southern or a conservative mutual fund.
For a retirement invesment, Penley likes blue chips, oil companies such as Mobil and Exxon, utilities like Duke Power and Commonwealth Edison and strong companies like Bristol Myers.
An alternative, Penley said, is an equity fund or a fund balanced between stocks and bonds.
Even in retirement, Penley said, "it's very important to look at, not what you need now, but at building growth for the future."
As you gradually cut back on risk, Tinaglia said, get help in setting the proper ratios. He said your banker, broker, acccountant and financial planner can help with the lifetime job of assessment and allocation.
by CNB