Is Holding Too Many Stocks a Bad Idea?

Are you a retiree with most of your retirement investments in stocks? Good idea? No. Even as the markets near or notch records every day, stay conscious of risks of not diversifying between classes of assets.

A recent Wall Street Journal article discussed how retirement savers are putting more money into stocks. Two excerpts:

“Stocks accounted for 67 percent of employees’ new contributions into retirement portfolios in March, according to the most-recent data … ”

“What cash I have, I’m going to use to buy more if the market dips,” said Roy Chastain, a 68-year-old retiree in Sacramento, Calif., who put an extra 10 percent of his retirement account into stocks in September, bringing his total stock allocation to 80 percent.”

If I understand Chastain’s situation, he sold out about half way through the market decline, likely missed a good part of the ensuing market run-up and now bulks up on stocks five-plus years into the market rally.

Part of the likely rationale: Stocks seem to be the only game in town. Bonds appear exhausted; with interest rates at record low levels there is seemingly nowhere for bond prices to go but down. Alternatives beyond stocks, bonds and cash, the new darlings of the mutual fund industry, have merit but separating alternatives’ wheat from the chaff is hard for most individual investors (and for many advisors).