Planners keep the faith

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: Ooops. Alan Greenspan has just discovered that, when the odor of money is floating on the air, you can’t expect the $$,$$$,$$$ bonus crowd to “just say no.’’ It was a flaw in his thinking, Greenspan concedes, in apparent shock. So what about the financial planners who advise pre- and newly post-retirement clients to hold a substantial portfolio of stocks? Are there flaws in that theory of asset allocation? I put that question on the Web site used by members of the National Association of Personal Financial Advisors. The resounding answer: NO. They’ve kept the faith in a financial portfolio that’s 50% to 60% invested in stocks for people facing a retirement of 20 to 40 years.

Given the history of the markets, that appears to be the only way of staying ahead of inflation, says Jay Hutchins, president of Comprehensive Planning Associates in Lebanon, New Hampshire. He sees your choice as either accepting investment risk or “disinvesting and virtually guaranteeing that you will run out of money if you live longer than 10 or 15 years.” Diversified portfolios fail you in a panic, says Tom Orecchio of Greenbaum & Orecchio in Old Tappan, New Jersey. Everything goes down at once. But while the strategy may not work day-by-day, it works over time, as different markets fall or rise at different rates of speed. You have to be able to wait out the panics, by holding enough cash and safe, liquid savings to see you through. “Advisers are rethinking what is a safe amount,” Orecchio says.

I suspect that investors are rethinking that, too.

Cash on hand

In general, the planners who answered my questions said that retirees should have enough money on hand to pay their bills for the next five years. Helen Modly of Focus Wealth Management, in Middleburg, Virginia, advises cash accounts for two years’ worth of expenses plus enough bonds coming due in each of the next three years to pay those bills, too.