Question: Kyle and Catherine in Cincinnati: We both want to retire in about 10 years. Is there a recommended amount of stocks/bonds we should have?
A: Some online retirement calculators and investing “rules” would say this is an easy question to answer. For instance, the “Rule of 100” (sometimes also called the “Rule of 110”) says subtracting your age from 100 (or 110) gives you the percentage of stocks you should have in your investment mix.
But here’s the problem: A rule like this treats everyone who is the same age as, well, completely the same! It doesn’t take into account considerations such as your sources of income, your tolerance for stock market risk, other sources of income, or your retirement goals. Your financial situation and retirement dreams are unique to you, so why use a rule that gives “blanket” advice?
Moreover, this generalized type of advice usually suggests a heavy emphasis on bonds for someone nearing retirement. But just getting to retirement isn’t enough. You also want to get through retirement, right? For you, it might make sense to have a little more stock exposure to help beat taxes and inflation. But again, everyone is different.
Here’s The Simply Money Point: To know how much stock exposure you should have, a personalized financial plan from a fiduciary financial advisor can help. It will analyze your entire financial picture and determine an investment mix of stocks and bonds that’s customized for your needs. This way, you’ll be taking just the right amount of investment risk – no more, no less.