New Projected Returns and Asset Allocations

Most of you know that once a year I rethink our projected returns on various asset classes.  We use these estimated “going forward” returns in our retirement planning to calculate the safe withdrawal amount you can take from your portfolio.

Normally, these projections change very little from year to year. This year, the service we rely heaviest upon for these calculations made some significant downward adjustments in their projections. Overall, the changes have lowered our projected returns by about .5%. I’ve spent the last couple of months researching, analysing, and pondering these results and their potential impact on our portfolios.

As a result of this analysis, I’ve made no changes to our overall asset allocations (bonds, equities, and alternatives).  However, in order to minimize the impact of the lower return environment to our portfolios I have made a few minor tweaks to our asset allocations in the sub-accounts.  For example, we allocated a little more to high yield bonds and a little less to high quality.  We also allocated less to REITS and more to absolute return.  Most of these are subtle changes.

The largest change is our decision to remove ‘Cash’ from our allocation models and distribute the percentage proportionately amongst high quality bonds, high yield bonds, and TIPS.  One of the major reasons to do this is that most of our retired clients now have a separate reserve of one to four years of income.  We felt there was little need to continue to hold cash (along with the terribly low returns) in the formal portfolio. This change only impacts asset allocations of a KFG 50, 40, 30, 20, and 10.

If you have any questions about these changes please drop Alison an email.

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