Susan Dziubinski: Hi, I'm Susan Dziubinski for Morningstar.com. If you are in or near retirement, chances are you have better things to do with your time than spend hours monitoring your portfolio. Joining me to discuss some strategies for reducing your portfolio oversight responsibilities is Morningstar's director of personal finance, Christine Benz.

Christine, thank you for joining me today.

Christine Benz: Susan, it's great to be here.

Dziubinski: Now, one obvious reason that you want to create a low-maintenance portfolio is that you have better things to do with your time when you are in retirement or getting close to it. But what are some of the financial advantages to doing so?

Benz: I do talk to plenty of investment hobbyists who love nothing more than parking themselves in front of their computer and monitoring their portfolios. But another key reason is simply that as we advance in age, there may be things that will disrupt our ability to monitor our portfolios. So, the idea is that if you can create a portfolio that's at least somewhat hands-off, it could run itself for a time if you for whatever reason were unable to keep tabs on it. So, that's one reason why I recommend that investors as they advance in age think about a strategy to try to reduce their oversight obligations.

Dziubinski: Now, what are some of those strategies that we might consider? One, I would think, is to choose an advisor and choose to work with an advisor. What other things we should be thinking about if we want to think about pursuing that route?

Benz: This is certainly the gold standard if you want sort of a seamless hand-off or if you want your portfolio to be able to be up and running while you're out of the country or while you are really unable to keep tabs on it. This is the best way to do that: Hire a trained professional to keep tabs on your portfolio and monitor it and make any sales that need to be done.

The key trade-off here though, of course, is that you will need to pay someone to do that work for you. So, depending on how much you pay, that can drag on your return. The counterargument, though, is that a good advisor can earn his or her keep many times over by keeping you in your seat during turbulent market environments. But nonetheless, you'd want to evaluate the costs of hiring an advisor. And I talk to a lot of investors who really enjoy the process of being hands-on with their portfolios, so that might not be the best route for them either.

Dziubinski: Another idea would be to dedicate a portion or all of your assets to a simple income annuity. And that has some attractive things to it as far as academics are concerned because it's very much like receiving that paycheck that you've kind of been accustomed to for a large portion of your life. What do we need to consider with that strategy?

Benz: As you said, Susan, with a plain-vanilla income annuity, that's basically what you get, that you get that regular paycheck. It's a great hedge against cognitive decline when we think about the risk of that affecting people's portfolio management skills. The big drawback or the big thing to consider is that annuities vary immensely. So, there are some very complex high-cost products and then the type of annuity that academics tend to favor is the very vanilla annuity type where you hand an insurer a portion of your portfolio and they send it back to you as a stream of income payments and those tend to be very low-cost products. But you do want to evaluate the costs.

The other issue is that once you have purchased an annuity, it's a contract and that money is no longer part of your portfolio. So, even academics wouldn't typically recommend that you send your whole portfolio into an annuity because you would want to maintain some liquidity. A very basic annuity wouldn't preserve any bequest motive, for example. So, if you are someone without a pension, it's may be something to consider with 20% or 25% of your portfolio, but you wouldn't want to stake your whole portfolio in an annuity.

Dziubinski: What about an idea of a simple one-fund portfolio? Is there really one fund that can do all the lifting for you, either a very well-diversified allocation fund or some sort of retirement-income fund?

Benz: Well, I like this idea a lot because it does help reduce the number of moving parts in a portfolio. One thing we've observed when we do our runs of investor return data where we look at investor behavior with products, we tend to see that these all-in-one products effectively keep investors investing throughout different market environments. So, there is a lot to like there. I think there's more work to be done in the financial services world to create better retirement-income products. Because the key thing I don't like about them is that when you sell a piece of that portfolio to meet your living expenses, well, typically, if it's some sort of a blended product, you are going to be selling some stocks and some bonds, and that's rarely a great time to sell both asset classes. Right now, for example, you might be wanting to sell stocks, leave your bonds alone. But if you are selling an all-in-one fund, you are selling shares of both asset classes.

Dziubinski: Well, instead of an all-in-one fund, how about a three-fund portfolio?You've been writing a lot about those lately and talking about it. How might a three-fund portfolio be a good solution for some investors?

Benz: So, a three-fund portfolio would simply be a bond fund, a U.S. stock fund, as well as an international fund. All index funds, very plain-vanilla, very well-diversified, very inexpensive. There's a lot to like about that sort of portfolio, especially if in retirement you bolt on a cash component. So, if you are using like a bucket strategy, you would have a couple of years of portfolio withdrawals in cash as well.

The issue with this is, as I think simple and cheap as it is, it does require more maintenance than some of the other options that we've talked about where you are still going to have to refill that cash bucket as you spend from it. So, unfortunately, it's not truly hands-off even if it does reduce the number of moving parts in the portfolio.

Dziubinski: Christine, thank you for being with us today and sharing these ideas for how to reduce our oversight as we get a little bit older and maybe want to do other things with our time than monitor our portfolios.

Benz: Thank you, Susan.

Dziubinski: For Morningstar.com, I'm Susan Dziubinski. Thanks for tuning in today.