Seek stability. Even retirees who actively manage their investments will want the bulk of their portfolio in a diverse set of investments that don't require much daily monitoring. "You should be setting up your portfolio in a way so you're not making constant changes," says Courtney. Adjustments and rebalancing, yes, but frequent stock and fund trades, no. "If you're very active in buying and selling asset classes, the odds are against you being able to time those right to make money [consistently]," he adds.
Courtney recommends that investors establish a core of investments that will keep their portfolios relatively stable as the economy fluctuates, diversifying through index funds with low management fees and steering clear of more complicated strategies such as funds that bet against, or "short," the market. Then, if investors are drawn to a specific sector of the market or to a particular fund, they can add that to their portfolio without threatening its overall diversification.
Value predictability. Monthly income funds, which aim to generate a consistent payout each month through a mix of stock and bond investments, can also be a smart choice for retirees, says Rob Williams, director of income planning at Charles Schwab. Other brokerage firms offer similar products, such as the Vanguard Managed Payout Funds and Fidelity Income Replacement Funds. Investing $100,000 in the Vanguard Managed Payout Distribution Focus Fund, for example, will yield an estimated $557 a month, according to Vanguard's website.
In addition, Schwab recommends income-oriented funds on its Income Mutual Fund Select List, including the Schwab Large-Cap Growth Fund, which has returned almost 4 percent over the last three months, and the Schwab Core Equity Fund, which has returned around 5 percent. Both of those funds are up over 40 percent for the year and carry expense ratios of around 1 percent or less. Making selections based on analysts' recommendations "offers a nice balance for investors who want to remain active but not spend too much time on it," says Williams.
Get emergency-ready. Retirees should also plan for emergency cash needs, Williams says, so they won't be forced to sell assets at a low point in the market. "If they have a dental [expense] or other large unexpected expense, then they might sell their stock portfolio and it's not the best time. They're letting the market control them as opposed to actively managing their portfolio so they have money that's there if they need it," he says. Williams recommends that investors determine how much to keep readily accessible in cash when making portfolio allocations.
As a money manager, Barber tries to look forward on behalf of his clients instead of dwelling on the past performances of funds, a common mistake people managing their own money tend to make. In 2008, for example, he began the year by focusing his clients' bond portfolios on inflation-protected treasury notes. But as it became apparent that inflation was less of a concern, he began to shift their investments into ultra-short treasury mutual funds, such as Vanguard's Short-Term Federal Funds. Then, as his team began to see an opportunity to make money in corporate bonds, he shifted investments into Fidelity's Floating Rate High-Income Fund, which buys debt from troubled companies. Being so nimble meant his clients' bond investments made money for the year, he says.
But don't forget to take risks. One temptation that retirees managing their own money need to resist is fleeing to safety. Even retirees in their 70s, who could live to be 100, should put 30 to 50 percent of their money in stocks, advises Susan Breakefield Fulton, founder of FBB Capital Partners in Bethesda, Md. Otherwise, she says, inflation can eat away at purchasing power. "If you're purely in the bond market, you're going to be able to buy less and less," she says. For investors who still feel shell-shocked from the downturn, it's not always easy to be sufficiently aggressive. According to a recent survey by Charles Schwab, more than half of adults believe there is likely to be another "serious dip" in the stock market before it improves. Asked about their retirement account goals, respondents said they wanted to grow and protect their savings, generate income to meet expenses, and avoid fluctuations in the market.