The New Commonsense Guide to Your 401(k): Rebuilding Your Portfolio From The Bottom up

Chapter 72. Your Portfolio

REVIEWING AND REPOSITIONING your investment portfolio for retirement—or transition—is a key part of your preparation for change. You have saved throughout your working years. Now you must take stock and see if you have what you need to last the remainder of your lifetime and, if not, what you might do about it.

When you think about your investment portfolio, think about all your assets—everything we've just been talking about in calculation of net worth. That includes your personal residence, a second home if you have one, a family business, the money in all your retirement plans, and the assets you have outside your retirement accounts. Look at the balance sheet you've just prepared as a start.

Your balance sheet provides a list of your assets. But you want to see what your portfolio looks like—or how those assets are grouped by investment category. Roger Gibson, an investment manager in Pittsburgh, has written what many experts consider the bible of asset allocation, Asset Allocation: Balancing Financial Risk (McGraw-Hill, 2007), which discusses how diversification limits investing risk. Gibson suggests that you divide your assets into two broad categories. The first is those that produce income such as bonds, money market funds, and Treasury bills. Include here any benefit that you will receive from a traditional pension plan or a defined benefit plan. That represents a fixed income because the monthly benefit is fixed.

The second is investments that represent ...