Don"t be too Conservative with Stocks in Retirement

Do you know the rule about the percentage of stocks you should own when you are at or near retirement? Many financial advisors suggest that a balance of stocks and bonds (I would include cash) is what your portfolio needs.

To find that balance, the rule was take your age and subtract it from 100. The remainder should be the percentage of stocks in your portfolio.

For example, if you are 65, then stocks should make up no more than 35 percent of your portfolio (100 – 65 = 35).

The idea behind this formula is that the older you are, the less exposure you have to the stock market and its notorious volatility.

Assets in Stocks

More of your assets are in bonds, which provide a stable source of income. I would split this portion between bonds and cash, but the principle is essentially the same – avoiding the ups and downs of the stock market.
All of this makes perfect sense, except, thanks to medical science; many of us are just living too long.

While bonds and cash can provide a steady income, they won’t likely keep pace with inflation.

Many financial advisors are now thinking healthy people approaching the retirement age of 65 may have to fund 20 to 30 years of retirement expenses.

Stock Strategy

You may need a middle strategy that keeps more of your retirement assets in solid stocks a bit longer than the above stated rule suggests.
Stocks provide the best chance of keeping pace with inflation, should it begin to rise.

If you are at or approaching retirement, give careful thought to being too conservative in your investment strategy.

With any luck, you’ll have many years to enjoy your well-earned retirement.

Articles on Investing for Retirement in this Series

Tough Choices for Stock Investors Facing Retirement

What to Do If You Lose Your 401(k) Match

Can Your 401(k) Be Resurrected?

Investing to Avoid the Longevity Risk

Time to Re-Think Role of Stocks in Retirement

Don't be too Conservative with Stocks in Retirement

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