Because we are all living longer these days, some advisors are now using 110 as the starting number. So, a 30-year-old might aim for 80% stocks and 20% bonds.
As you get closer to retirement, your mix moves more toward the safer investments so that you can be sure the money will be there when you need it.
These days, brokerages, robo-advisors and investment apps have made choosing investments much more user-friendly, and even fun. Target date funds automatically adjust the risk level as you get closer to your desired retirement year, while online investment sites offer curated options based on your goals, values and timeline. (But, remember, nothing is guaranteed.)
HOW DO YOU CONTROL RISK?
One of the best ways to protect against big losses is to spread out the risk among a variety of investments (stocks and bonds, domestic and international, private and public, small and large, various industries, etc.).
Some things are common sense, even if you don’t know anything about investing. For example,
- If you invest in a very small segment of the market, you will feel the volatility of that segment more.
- Large companies are generally more stable than small start-ups.
- International stocks and bonds are affected by the politics and economic environment and currency in that region.
- High-yield (or “junk”) bonds have the potential to earn higher returns, but they often have low credit quality ratings. So, it’s like loaning money to someone who might not be able to pay you back.
When you’re in the planning stage, it’s more important to identify the types of investments you want in your mix rather than the specific funds and stocks. Once you set your plan in motion, don’t tinker too much because of fees. Check in with your investment mix and make adjustments at least once a year or so to make sure you’re still hitting your target risk level.