| Your best investment strategy if you feel clueless | | | | investment portfolio? Here's the traditional rule of |
| could be the simple investment strategy or "rule | | | | thumb. |
| of thumb" that's been around for years. Here we | | | | You should allocate a percentage to bonds that is |
| explain the basics of this strategy, and then get | | | | equal to your age, with the rest going to stocks. |
| into how to put it into action without stress or | | | | In other words, the best investment strategy for |
| strain. | | | | a 20-year old is 20% to bonds and 80% to |
| It's nice to have a basic guideline to go by when | | | | stocks. At age 60, you want 60% in bonds and |
| managing your investments. Traditionally, the | | | | 40% in stocks; and at age 40 a ratio of 40% |
| most basic guideline has focused on two things: | | | | bonds and 60% stocks is your best investment |
| the need for balance in an investment portfolio | | | | strategy. That's the rule of thumb that's been |
| and the age of the investor. Simply put, your best | | | | around at least as long as I have, and I've been |
| investment strategy is a function of these two | | | | into investing for 35 years. There are no |
| factors. Balance is a way to control risk while | | | | guarantees in investing, but keeping the above |
| earning higher long term returns. The traditional | | | | guidelines in mind should keep you out of major |
| approach to investment strategy focuses on | | | | trouble over the long term. |
| owning both stocks and bonds to achieve balance, | | | | Over time you need to invest more |
| since losses in one of these investment options is | | | | conservatively as you age, so you need to adjust |
| often offset by gains in the other. | | | | your portfolio over time to reflect this. Now, how |
| Age is taken into consideration because it is | | | | can average or even clueless investors set up |
| assumed that younger investors can afford to | | | | their best investment strategy without picking the |
| take more risk in pursuit of higher returns in order | | | | individual stocks and bonds to invest in? The |
| to accumulate a larger nest egg for retirement. | | | | simplest way is through mutual funds: bond funds, |
| After all, earning 5% a year $10,000 grows to | | | | stock funds, or balanced funds. Mutual funds pick |
| $43,000 in 30 years vs. $174,000 at 10%. If you | | | | the stocks and/or bonds for you and handle all of |
| are young and experience a setback you've got | | | | the management details. In fact, the traditional |
| plenty of time to make up for it. When you are | | | | balanced fund invests 40% in bonds and 60% |
| older this is not the case - you need less risk, | | | | goes to stocks. |
| more safety, and income. | | | | Other balanced funds, like target funds and |
| Stocks are the primary investment of choice for | | | | lifecycle funds, can be either more conservative |
| young investors, and over the long term have | | | | or more aggressive in their asset allocation to the |
| returned 10% on average per year. On the flip | | | | two primary investment options, stocks and |
| side, bonds are preferred by oldsters, and have | | | | bonds. If you really feel clueless, go with a |
| returned 5% to 6% on average over the years | | | | balanced fund that fits your risk profile. The fund's |
| at a lower level of risk. In putting together your | | | | literature will describe how it ranks in terms of |
| best investment strategy the traditional question | | | | risk from high to low. Above all else, your best |
| becomes: how much of each of these two | | | | investment strategy is one that you feel |
| investment options should you hold in your | | | | comfortable with in terms of risk. |