Financial professionals advise that if you are saving for retirement, the younger you are, the more money you should put in stocks. Though past performance is no guarantee of future results, over the long term, stocks have historically provided higher returns and capital appreciation than other commonly held securities.
As you age, you have less time to recover from downturns in the stock market. Therefore, many planners suggest that as you approach and enter retirement, you should begin converting more of your volatile growth-oriented investments to fixed-income securities such as bonds.
A simple rule of thumb is to subtract your age from 100. The difference represents the percentage of stocks you should keep in your portfolio. For example, if you followed this rule at age 40, 60 percent (100 minus 40) of your portfolio would consist of stock. However, this estimate is not a substitute for a comprehensive investment plan, and many experts suggest modifying the result after considering other factors, such as your age, risk tolerance, financial goals, and the fact that individuals are now living longer and may have fewer safety nets to rely on than in the past.
For example, if you accept an early retirement package at age 57, it’s feasible that you’ll be living off your retirement fund for as long as 30 years or more. That long time frame gives your portfolio greater potential to recover from any unexpected downturns in the markets. And with inflation and the rising costs of medical care, you are likely to need more growth over that 30 years than most fixed-income securities typically deliver. You may want to keep a portion of your portfolio invested in stocks well into your retirement years.
If you’re investing for something other than retirement, the simple rule of thumb probably doesn’t apply.
If you’ll need access to your investment dollars within a few years (e.g., to purchase a home or to pay your child’s tuition), you should consider investing more of your portfolio in less volatile securities that focus on capital preservation.
If your investment goals are short-term (e.g., two to five years), you won’t have time to recover from a downward swing in the markets, and you run the risk that money invested in volatile assets may not be there when you need it.
Michael J. Brown, AIF® Senior VP / Branch Manager, Janney Montgomery Scott, 401 New Road, Suite 200, Linwood, NJ 08221, 609-601-2512, michaelbrown@janney.com.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021 Janney Montgomery Scott LLC Financial Advisors are available to discuss all considerations and risks involved with various products and strategies presented. We will be happy to provide a prospectus, when available, and other information upon request. Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties.
Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Janney Montgomery Scott LLC is a member of the New York Stock Exchange, Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
