(PUB) Investing 2015

August 2015

Morningstar FundInvestor

17

tion-Protected Securities fund; its performance has been respectable, and its fees are low.

reduce volatility, it omits the position in T. Rowe Price International Discovery.

Bucket 3: Years 11 and Beyond 25%

Bucket 1: Years 1–2 10%

T. Rowe Price Dividend Growth PRDGX

Cash (money market funds and accounts, CDs, checking and savings accounts, and so forth; percentages will vary based on the amount of assets and retiree’s spending rate)

10%

T. Rowe Price Equity Index 500 PREIX

5% 5%

T. Rowe Price Diversified Small Cap Growth PRDSX

T. Rowe Price Real Assets PRAFX

Bucket 2: Years 3–10 10%

10%

T. Rowe Price Overseas Stock TROSX

T. Rowe Price Short-Term Bond

5%

T. Rowe Price International Discovery PRIDX

10% 20%

T. Rowe Price Inflation-Protected Bond

T. Rowe Price New Income

Bucket 3 is the growth engine of the portfolio, so it’s dominated by equity funds. Silver-rated T. Rowe Price Dividend Growth, a large-blend fund, is the core equity position in the portfolio; like Vanguard Dividend Growth VDIGX , it prioritizes high-quality companies with a history of growing their dividends; its dividend is not high in absolute terms. I also included a posi- tion in T. Rowe Price Equity Index 500 ; while not as inexpensive as some rival S & P 500 trackers, it gives the portfolio exposure to sectors that the T. Rowe Price Dividend Growth fund is light on, such as tech- nology. T. Rowe Price Mid-Cap Growth and Mid- Cap Value are closed to new investors, so I used a small position in T. Rowe Price Diversified Small Cap Growth to give the portfolio exposure to small caps. For foreign-stock exposure, I used Bronze- rated T. Rowe Price Overseas Stock; because it lacks significant small-cap and mid-cap and emerging- markets exposure, I added a small position in T. Rowe Price International Discovery. Finally, I added a small position in T. Rowe Price Real Assets to supply inflation protection; the fund focuses on natural- resources stocks and REIT s. Investors aiming to simplify could reasonably stick with the two core equity positions—T. Rowe Price Dividend Growth and T. Rowe Price Overseas Stock—and skip some of the smaller positions.

Bucket 3: Years 11 and Beyond 20%

T. Rowe Price Dividend Growth T. Rowe Price Equity Index 500

10%

5% 5%

T. Rowe Price Diversified Small Cap Growth

T. Rowe Price Real Assets

10%

T. Rowe Price Overseas Stock

Conservative Bucket Portfolio Anticipated Time Horizon: 20 or more years In contrast with the aggressive and moderate portfo- lios, both of which emphasize growth to varying extents, this portfolio is geared toward older retirees with shorter time horizons. As such, its focus is on preserving purchasing power and funding living expenses; capital appreciation is secondary. Its growth prospects are relatively low, so it would not be appropriate for younger retirees unless they are extremely risk-averse and—more importantly—have more than enough money to last throughout their retirement years. K Contact Christine Benz at christine.benz@morningstar.com

Bucket 1: Years 1–2 12%

Cash (money market funds and accounts, CDs, checking and savings accounts, and so forth; percentages will vary based on the amount of assets and retiree’s spending rate)

Bucket 2: Years 3–10 13%

Moderate Bucket Portfolio Anticipated Time Horizon: 20 or more years

T. Rowe Price Short-Term Bond

10% 25%

T. Rowe Price Inflation-Protected Bond

This portfolio contains the same holdings as the aggressive T. Rowe portfolio, differing only in its allocations to them. Because it’s geared toward retirees with shorter time horizons, it includes larger positions in high-quality short- and intermediate- term bonds and smaller positions in equities. To help

T. Rowe Price New Income

Bucket 3: 11 Years and Beyond 20%

T. Rowe Price Dividend Growth

10% 10%

T. Rowe Price Equity Index

T. Rowe Price Overseas Stock