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Originally published Saturday, April 5, 2014 at 8:01 PM

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Two ways to change a portfolio allocation | Scott Burns

Two readers, one 67 years old and the other 70, ask about shifting more of their investments from bonds into stocks.

Syndicated columnist

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Q: I am a 67-year-old widow with no debt and enough monthly income to maintain my home and lifestyle. I have $884,829 in an account with Fidelity — a 401(k) plan plus lump-sum pension.

The account belonged to my husband who died four years ago. He had set the portfolio asset allocation at 97 percent bonds, 3 percent stocks. The account averages an income of about $30,000 a year.

Now that the stock market has improved, I’m wondering if I should move more into stocks. Maybe 80/20 instead of 97/3?

A: To make any changes, you will need to think about two things.

One is whether you want to time the market. It’s seldom a fruitful undertaking.

The other is what your risk tolerance is — how much loss you can suffer without losing sleep.

But your allocation to fixed income is so large, an increase in stocks is reasonable in any case.

A portfolio that Morningstar labels as a “conservative allocation” fund, for instance, typically has 40 percent invested in stocks. A more typical “balanced” portfolio or “moderate allocation” portfolio has about 60 percent invested in stocks.

Q: I am 70. I still work part time and draw Social Security.

My wife is 64, retired and drawing a pension. She has not yet signed up for Social Security.

We have a little more than $1 million in IRAs. They are invested in three bond funds: Franklin High Income fund, Franklin Income Fund and Templeton Global Bond Fund.

We also have $100,000 in Templeton World Fund. We have enjoyed good dividends for the past three years, and we are taking only the dividends, while preserving our principal.

In the past, when we moved our money from stock funds to bond funds, it cost me $12,000 in commission fees.

Should I move some money into stock funds? I want to avoid paying so much in commissions if possible.

A: Usually, if you move money from one fund in a fund family to another fund in the same fund family, there will be no commission charge. The transaction is called a “fund exchange.”

If you look under “Exchanging Shares” in the prospectus for a Franklin Templeton fund, you will find that you can do fund exchanges between funds of the same share class, such as A shares, without a sales charge.

And since the Franklin-Templeton family of funds is quite large, your broker should be able to find one or more equity funds in that family that will serve your purpose.

If your broker can find opportunities only in other fund families that require paying a commission, it would not be unreasonable to question his motivation.

The second way to avoid commissions is to buy a no-load fund, preferably an index fund, but you will have to do this on your own.


Copyright 2014, Universal Press Syndicate

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