I'm advising my clients to invest, '60% equities, 20% bonds,' and 20% in alternatives: CFA

Michelle Connell, CFA and Owner of Portia Capital Management joined Yahoo Finance Live to break down where investors should put their money and the best way to diversify your portfolio for retirement.

Video Transcript

- And let's continue this discussion on TSCs, and that also other retirement plans. And for that, we want to do that with our retirement segment, brought to you by Fidelity Investments. And we have Michelle Connell, CFA and owner of Portia Capital Management.

Michelle, first, let's just start with what we heard from Kevin Hassett, talking about letting lower and middle income Americans open up a TSC, which is a thrift savings plan, to help people save for retirement. What do you think of this idea?

MICHELLE CONNELL: I think it's a great idea, when we're looking at how many people potentially are going to be retiring into poverty, especially middle class and below. And the focus would be women and minorities that are going to be hit the hardest if they don't have a retirement backstop. So I like the sound of this program. It makes sense.

Yes, there's a cost to it. But ultimately, is it really that big of a cost, versus what the government would have to help those individuals when they are in poverty?

- You raise a good issue, Michelle. And I actually spoke with Kevin about what you just said. One of the things he responded-- he said, you know, one thing you-- first, you got to let people have access to a retirement savings plan. But then he points to that CBO study in which, when people are automatically enrolled in one of these, and they're getting a match, they stay in them.

From your experience, do you find that your clients, if the employer pulls the match, or stops the match, that they stop contributing to their retirement account?

MICHELLE CONNELL: I haven't seen very many instances where an employer pulls a match. We are seeing more employers, new employers, not match or match less. But if-- I most individuals, once they're in a plan, they're on automatic, and they'll stay in it. That's been my experience.

- Michelle, let's also just talk a broader picture, just in terms of what we're seeing play out. Because yes, a lot of people aren't saving for retirement. And we're also in an environment where the market's not too far from those all time highs that we saw. We're starting to see a little bit of inflation.

Of course, there's debates out there as to whether or not we're going to see a follow-through on that. Now there's talk of higher taxes, when Biden is laying out another economic plan that's expected to come next week. How is this affecting someone's ability to retire?

MICHELLE CONNELL: Well, it was looking dim before we had the change in administration, because we were looking at lower potential upside for equities. 2022 and beyond, you're looking maybe 5%, 6%, bonds coming out at 3%. So, your typical 60-40 maybe making 4%. So that is what we were looking at before the potential for inflation and taxes.

So now, individuals have an even higher bogey if they are going to retire, and have the ability to have any type of distribution that's going to be meaningful on their lifestyle.

- You just mentioned 60-40. And then there's the old adage, your age, and you subtract it to figure out the right balance. I imagine this is a headache for someone like you, because you have so many different clients at so many different ages. But what's the appropriate, do you think, in this environment, asset allocation for bonds, for instance?

MICHELLE CONNELL: I think the bond allocation has come down a lot, just because they're making so little at this point. So I'm guiding clients closer to 60% equities, 20% bonds. And a lot of those bonds are more on the private side, meaning that they're private, but they have a gate that allows you to get out quarterly. And they're floating, so you're making close to 6%.

And then the remaining 20% in alternatives-- alternatives now are being sliced to such a point that even a common investor can participate. And I think that's the only way an average investor is going to be able to retire, if they take a more foundation like approach, by looking at something that's a little bit less traditional and a little bit higher octane.

- Michelle, real quick, because I think that this is something that people struggle with-- how often should we be reviewing our 401(k) plans? Is it something you should do once a year? Should we do it a couple of times a year? Should we do it even more often than that?

MICHELLE CONNELL: Well, the problem is, people don't even review it at all. When you look at the statistics, it's about 40% of men review it, and about-- it's less than 20% of women review theirs on an annual basis. So if we can just get people to review it on an annual basis, I would be happy.

I think twice a year is a good benchmark to start with most people, so that they're seeing that things are getting out of whack. Because last year, a lot of people in the large caps have done extraordinarily well, especially if they were more heavily balanced towards the gross side.

You need to learn to be prudent and a little bit more clinical in your approach, in terms of rebalancing, and taking some money off the table in the areas that have done well, the asset classes like growth and large cap, and moving into the other areas that you have available to, be it small cap or international, and just being a little bit more prudent, in terms of your approach of opening up the statements.

I can't tell you how many clients don't open up the statements. And I have to ask for them at least annually, to make sure that they're on top of them, so that we can have that rebalancing.

- Michelle Connell, great to speak with you, CFA, and also owner of Portia Capital Management.