(FORTUNE Magazine) – WHEN THIS 50ish executive's marriage ended, so did his long-range investment plans. His divorce settlement requires $25,000 in annual support payments to his ex-wife for the next five years. Zicklin's response: a portfolio that is split 60% in stocks and 40% in fixed income. But his client should recast his allocation when the support payments cease.

AN ALIMONY PAYMENT is an absolute kind of demand. It simply must be met. To supply the bulk of this obligation, we wanted a fixed-income component to be of high quality, with no possibility of diminution of principal. Keeping in mind that we needed some dividend income to make up the rest of the alimony, we simply picked the best values in stocks that we could find. We divided the fixed-income portion into two parts -- $100,000 in 10% Ginnie Maes and $100,000 in two-year Treasury notes. Assuming you will be able to roll over the Treasuries at roughly the same rates, the interest should take care of two-thirds of the alimony payment. My client gets something out of this allocation too, namely less volatility in the portfolio as a whole. The nice part is that we pay a small price in terms of total return. If you put 100% of a portfolio into the S&P 500, and the market continued to perform at the pace it established over the past decade, the rate of return would be about 17.5%. Making the same assumption about stocks, but putting only 60% in stocks and the remaining 40% in Ginnie Maes and Treasuries, you get a rate of return that is nearly as good, about 15.7%. But the portfolio would be a lot less volatile. The stock portion of the portfolio is not heavily weighted in any area, and we haven't really made any predictions about the economy. Instead, we look for companies that offer good values and that produce a lot of excess cash. Then we make sure you have good management that knows how to put money to productive uses. You like to see higher dividends, as is the case with Pacific Telesis, one of the Baby Bells. But at Applied Materials, a maker of semiconductor equipment in Santa Clara, California, they reinvest a lot in the business, putting 15% of sales back into R&D. Sometimes, the best use of cash is a stock buyback, as at Dayton Hudson, Capital Cities/ABC, and ITT. Buying your own stock is a lot better than speculating on somebody else's company, which you can't know inside out the way you know your own. Stocks that are under pressure for one reason or another are sometimes good buys. American International Group, an insurer, bought a jet-leasing outfit recently and the market didn't like it. At Gannett, the big newspaper company, advertising is way down and the company had its first down quarter in many years. American Cyanamid sold off its household products division to put greater emphasis on its more speculative biotech and chemical units. But in every one of these cases, the basic financial health of the organization is sound, and we feel that the strong management will be able to produce good results despite the changes the company is going through. When the alimony ends, my client will have to rethink his allocation. He will still have a few years to go before retirement. Exactly what he should do will depend on what is happening then. The only thing we do know now is that the world will change.

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