Courtesy of Chuck Carnevale.
Introduction
Creating and designing a retirement portfolio capable of meeting your income needs has always been challenging. This has become especially difficult considering the current state of both the equity and debt marketplaces today. Bonds (fixed income) offer little in the way of income due to today's low interest rates, which also turns their classically safe risk profile upside-down. Conversely, many fear that the current "Bull Run" in equities might be long in the tooth, which has driven many equities to becoming overvalued, and therefore also more risky than normal.
I am a strong advocate of adequate and proper diversification. On the other hand, I do not believe in over-diversification or what Peter Lynch is credited with calling diworse-a-fication. Additionally, I do not believe in diversifying just for the sake of being diversified. If a given asset class does not make sound economic sense, I consider it illogical to invest in it just because others say I should. In today's marketplace, I consider the bond market a case in point.
When I did utilize bonds as an investment choice, and for most of my career I did, I always implemented a laddered bond portfolio approach. What I liked best about laddering was the flexibility that a laddered bond portfolio provided. When any of my shortest duration bonds matured, I had the choice of reinvesting into the same duration of short maturities if I believed interest rates were on the low side of the cycle. Conversely, if I felt interest rates were on the high side of the cycle I could invest my matured bonds into longer maturities to lock-in the higher yields. And I could continue holding my other bonds to maturity and continue this process as each rung on the ladder became available.
