Here’s how several top advisors structure portfolios for conservative clients.
Donald F. Dempsey, Jr., CFP, Dempsey Investment Management, LLC in Williston, Vt.
T. Rowe Price Capital Appreciation (PRWCX) is a fund I use for some clients. Despite its name it is actually a well-balanced fund that owns U.S. stocks, U.S. and foreign bonds, convertibles, preferred, foreign stocks and cash.
Over the last ten years it only had one down year (2008: -27.17 percent) and has averaged 8.63 over 10 years and 9.65 over 15 years putting in the top 1 percent of its category over those time frames.
Also important is its reasonable fee structure of 0.75 percent.
The only downside for smaller clients is the transaction fee at firms like Schwab, TD Ameritrade and Fidelity, so it is not my first choice for small clients or those looking to dollar cost average.
Susan MacMichael John, CFP, Financial Focus, Inc., Wolfeboro, N.H.
My favorite core fund for conservative investors is Vanguard Wellesley Income Fund (VWINX). It offers an extremely conservative mix which consists primarily of dividend paying stocks and investment grade bonds.
Low turnover (about 53 percent), low volatility (five-year standard deviation of less than 7.5), reasonable income (current 12-month yield of about 4 percent) and low expenses (0.31 percent according to their annual report). What more could you ask for?
Perfect for an IRA or for someone seeking income with some prospect for growth: 3 year annualized total return of 3.26 percent; 5 year: 4.94 percent; 10 year 6.84 percent.
Michael D. Gibney, CFP, Highland Financial Advisors, LLC, Riverdale, N.J.
For conservative clients who only have the capability for one fund, we often recommend American Funds Capital Income Builder (CAIFX).
The fund has an excellent allocation of 70 percent stocks and 30 percent bonds (which is actually a little higher than normal–last year it was 60/40). Further, the fund has an appealing allocation to non-U.S. stocks (40 percent of the 70 percent listed above).
The bond allocation has an average duration on the intermediate side, with a current duration of only 3.7 years (average maturity of 5.1 years). This is important in a rising interest rate environment.