28 Dec, 2007, 0027 hrs IST, REUTERS

WASHINGTON: Here’s a bad idea whose time has gone: Retirees should keep a lot of their money safe in bonds. Traditionally a popular source of income for folks at the receiving end of social security, bonds have “failed miserably” to protect retiree income, according to a recent study by financial advisor Tom McGuigan.

“The standard industry mantra of balance — the 60/40 split (with 60% in stocks, 40% in bonds) — is not suitable for most people’s retirement income,” he says. “It’s a little less risk, a little less return, and a lot less retirement.”
His firm, Burns Advisory Group in Old Lyme, Connecticut, tested the endurance of different portfolios against typical retirement withdrawals for a 30-year period.

The withdrawals started at 5% of the portfolio in the first year and moved up every year at the average inflation rate. The portfolios were tested using historical data for 26 different rolling 30-year periods, beginning with 1969-1998 and ending with 1975-2004.

The all-bond portfolio was the big loser; it only lasted 30 full years in three of the 26 periods tested. But the 60/40 mix — a portfolio made up 60% of the Standard & Poor's 500 Stock Index and 40% of corporate bonds — wasn’t much better.


It succeeded less than half of the time, lasting 30 years in just 11 of the 26 periods tested.
Even the all-stock portfolio had just a 69% success rate when it was invested fully in the big companies that make up the S&P500. The only portfolio that had a 100% success rate was a completely diversified portfolio of stocks that included shares of large and small companies and growth and value companies.

The lesson is not what it seems: Don't put 100 percent of your retirement money into stocks, McGuigan says. You need some bonds and bank savings for short-term security. But he recommends that retirees put as much of their portfolios into diversified stocks as they can stand.

(Source: http://economictimes.indiatimes.com/Markets/Bonds/Bonds_safe_place_for_retiree_money/articleshow/2656565.cms)