You’ve no doubt heard that Mattel has expanded its iconic Barbie franchise to attract a more diverse group of buyers. But whether you’re a Barbie aficianado or, like me, you know nothing about Barbie other than that she looks preternaturally young despite being around 57 years, you can draw some worthwhile investing lessons from Mattel’s move. Here are three of them:
1. One size does not fit all. For years, Barbie lovers had to get by with the original 11 1/2-inch tall version of Barbie whose “real life” statistics would translate to a height of 5 feet 9 inches and a rather difficult-to-achieve 18-inch waist. But as conceptions of beauty and body image have evolved, so has Barbie. Last year Mattel introduced, among other things, new skin tones, hair colors and a “flat foot” version, while this year’s major change was the addition of three new body shapes: tall, petite and curvy.
So, what does this have to do with investing your retirement nest egg? Well, just as one version doesn’t meet all needs in dolls, that’s also the case for retirement portfolios. The mix of stocks and bonds that’s right for you can depend on, among other things, your age, the size of your nest egg, how long you intend to have your money invested before tapping it and how much risk you’re willing to take (which you can gauge with this risk tolerance-asset allocation questionnaire). Whether you’re considering investing in a target-date fund, an account created by a human or robo-adviser or trying an investment strategy you’ve read about (like the 90% stocks-10% bonds “Warren Buffett” portfolio that’s been making the rounds lately), remember: just because a portfolio or strategy works for someone else doesn’t mean it will work for you. More important than the investment or strategy itself is whether it makes sense for you and your situation.
2. A little customization can be a good thing. Although this year’s makeover included other additions, the biggie was increasing the total number of body types from three to four. Granted, that number hardly replicates the entire range of human shapes and sizes. But it should allow many, many more buyers to visualize someone like themselves in one of the versions of the doll and also send the message that there is no single ideal body shape.
The corollary for your retirement portfolio: By taking a few simple-but-important building blocks—a total U.S. stock market index fund or ETF, a total U.S. bond market index fund or ETF and a total international stock market index fund or ETF—and combining them in the right proportions, you should be able to get exposure to all or nearly all of the asset classes you need and build a portfolio that can reap the benefits of diversification, generate the returns you need to achieve your financial goals and do it in a way that’s consistent with your appetite for risk.
3. Too much customization can be counterproductive (in investing at least). If you combine Barbie’s three new body types plus the original with other variations (skin color, facial structure, hairstyles, accessories, etc.), you can come up with an astounding variety of choices. (On a recent visit to the Barbie section of Mattel’s site, I saw more than 200 versions of Barbie, ranging from Barbie Fashionistas “Crazy for Coral” petite to Barbie Spy Squad Cat Burglar Doll.)
But while such a panoply may be fine, even preferable, when shopping for dolls, it’s less helpful, and possibly dangerous, when it comes to investing. Sure, many advisers these days contend you need to load up your portfolio with all manner of arcane assets and exotic ETFs that trawl obscure corners of the market. But the more investments you add to your portfolio, the more unwieldy it becomes and the more likely you’ll end up “di-worse-ifying” rather than diversifying.
If you want to go beyond the basic building blocks I mentioned above—say, putting a small piece of your portfolio in a real estate fund or TIPS fund for additional inflation protection or even devoting some savings to an immediate annuity or a longevity annuity to generate assured lifetime income beyond Social Security for retirement—fine. But do so methodically and cautiously. If you need the fingers of both hands to count the number of investments you own, chances are that own investments you don’t really need, and you may want to consider trimming your holdings.
Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at firstname.lastname@example.org. You can tweet Walter at @RealDealRetire.