Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Adam Zoll and Christine Benz | 12-19-2013 11:00 AM

A Year-End Portfolio Check for Retirees

As 2013 comes to a close, retirees need to mind their portfolios' interest-rate sensitivity, consider adding to inflation-fighting investments, and avoid behavioral traps following the bullish equity market.

Adam Zoll: For Morningstar, I am Adam Zoll, and welcome to our Retirement Radar year-end review. Here, joining me as always is Christine Benz. She is Morningstar's director of personal finance.

Christine, thanks for being here.

Christine Benz: Adam, it's great to be here.

Zoll: Let's first talk about an issue that was of concern this year for lots of retirees, which is the bond market. The bond market this year experienced probably more volatility than we're used to. Can you talk about why that was?

Benz: [There was] a lot of concern over the Fed's tapering and when that would begin--so when the Fed would pull back on this bond-buying program, which has pushed down on interest rates for the past couple of years, [there was] a lot of concern about that. And then, more broadly, I would say, it was just sort of a risk-on sort of year. Investors were very attracted to equity investments. We saw very strong performance from the equity markets, and so fixed-income investments just didn't perform, as well.

Zoll: Now, were there particular areas of fixed income that were hit harder by this trend than others?

Benz: Absolutely. As you might expect, any sort of investment with a lot of interest-rate sensitivity embedded into it performed particularly poorly. Long-duration Treasuries, of course, bringing up the rear for 2013. Treasury Inflation-Protected Securities also performed pretty badly. There was kind of a double-whammy here. Inflation was generally at bay, so investors didn't have a strong appetite for these securities, and also most TIPS tend to be pretty interest-rate-sensitive. Those were the categories that were the hardest-hit.

On the plus side, we did see very strong performance from a couple of the more credit-sensitive categories. High-yield bonds and bond funds performed very well as you might expect in a risk-on sort of year. And then also bank loan investments generated very strong numbers during the year. Both of those were leading the pack really at the expense of everything else.

I also forgot to mention municipal bonds performed very, very poorly. They were down in the list of laggards. And there you had interest-rate worries weighing on munis as well as some of the concerns over municipalities' finances; that, too, weighed on muni bonds. Most [muni-bond] funds will end the year in the red slightly, but a loss just the same.

Read Full Transcript

{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article