Monday, Oct. 26, 2009

Dial Back Investment Risk

Up to now a portfolio dominated by stocks made sense. As an asset class, stocks offer the highest expected returns and with 20 or more years to retirement you didn't need to worry so much about risk. You had time to recover, and you still do. But this is your last chance. With just 10 years to retirement you cannot weather another bear market like the one we just went through. You should have about 45% of your investments in bonds. Keep some stocks but make sure they are blue chip and pay a dividend. This is also a good time to consider buying an income property, if you are so inclined. A target-date retirement fund pegged to your 65th birthday is a good approach. Remember that while bonds are less risky than stocks they are not a sure thing. You want to be diversified among high-grade corporate debt (with a small amount of high yield bonds), tax-free munis, foreign bonds and Treasuries. Your biggest risk with bonds is that interest rates will rise, which also means that bond prices will fall. So plan on holding your bonds to maturity (when all principal is repaid), or stick with short- or intermediate-term bond funds which are less vulnerable to rate moves.


Planning For Retirement: Your 50s

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