From Stocks to Bonds: Time to Switch?

If the cash and bonds yielded 3.5 percent a year in dividends and interest, you could withdraw $40,000 a year from the portfolio for 13 years before you would need to tap into your stock holdings. Include the dividends paid out on the stocks, and that $40,000-a-year withdrawal will last even longer.

The point is, you may have the time to wait out the turmoil.

Under this scenario, the question to ask yourself is how likely you think it is that stock values will be higher 13 years or more from now. There's no sure answer. But your own individual response can help you decide how much more risk you can stomach and what share of your money you want invested in stocks.

As part of this process, I also would suggest that you study your portfolio in detail and make sure you understand every aspect of it. For instance, are you sure your portfolio, in fact, holds 60 percent stocks and 40 percent bonds and cash, as suggested by your asset allocation model?

Don't Neglect Conservative Investments

With the steep decline in stock prices, the stock portion of most portfolios have fallen well below their original targets. Has your adviser rebalanced by using the cash or bonds to buy additional stocks to return to that 60 percent target for stocks? Or has the state of the markets made you too nervous about doing so? Could you now be at 50-50?

Even if they don't sell their stock holdings, many investors are finding it difficult to bring themselves to buy more.

And when studying your portfolio, pay close attention to the precise kinds of bonds and cash holdings. What kinds of bonds do you own and in what form? Are they individual bonds or bond mutual funds? Corporates or treasuries? Investment grade or high yield (a.k.a. "junk bonds")?

For cash, are you in CDs or money markets?

As we navigate through these turbulent times, it is my belief that investors need to focus as much on the conservative side of their portfolios (bonds and cash) as the riskier side (stocks). It is the conservative side that is supposed to carry us through times like these.

Make sure you know whether your portfolio has that capacity.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at

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