ASK KIM
How Much Should I Allocate to Stocks?
by Kimberly Lankford

Is it true that the percentage of stocks in a portfolio should be equal to one hundred minus one's age?

That's a good bare minimum allocation, but you should generally invest more aggressively.

Evelyn D'Amico, a certified financial planner in Paoli, Pa., says that retiring with only 35% of a portfolio in stocks at the age of 65 puts investors at a disadvantage. "With only a 35% exposure to the equity market, they will have a tough time keeping up and having their assets grow," she says.

Stuart Ritter, a certified financial planner with T. Rowe Price, recommends modifying the rule to 110 minus your age, times 1.25. In that case, a 50 year old would keep 75% of his portfolio in stocks. If you have a pension that provides guaranteed income, you can include that in the fixed-income portion of your portfolio, freeing the rest of your investments to grow more aggressively.

See our long-term mutual fund portfolio for ideas about where to invest your money if your goal is more than ten years away (or if you're retiring in more than five years). This portfolio invests entirely in stock funds, but you can add a bond fund (such as Harbor Bond) if you don't feel comfortable taking on that much risk.

Our medium-term fund portfolio, which includes some bond funds, is good for people who are within five to ten years of their financial goals or plan to retire within five years.

Invest money for short-term goals much more conservatively, because you won't have enough time to ride out the market's ups and downs. If you're saving for a downpayment on a home, for example, keep that money separate from your retirement portfolio. See our short-term portfolio for investing ideas when your goals are less than five years away.