What is Asset allocation?
If you are investing for retirement, then your age and the age you want to retire play a large role in how your investments should be allocated. As you near retirement, your portfolio should shift from riskier equities, like stocks, to safer investments that you can use when you need them. You also don’t want to be so risk-adverse early in your career that you miss out on income, or worse, fall behind inflation. Asset allocation is very important to your retirement’s bottom line.
The “100 Minus” Rule of Thumb
But how to choose the right balance? The Rule of Thumb that investors have used for years is the “100 Minus” rule: 100 minus your age equals the percentage of your portfolio that should be invested in riskier equities. By this rule:
- A 25 year old should invest ~75% of their assets in stocks
- A 75 year old should invest ~25%.
The rest is to be invested in “safe” securities including, but not limited to, High-grade bonds, Money Market Accounts, and CDs. March 2020’s stock nosedive illustrates how important proper asset allocation can be for the investor. A young investor has time to recover gains and average out losses over the long term. An investor about to retire, however, may be forced to lock-in losses when cashing out investments needed for everyday living.
What Do I Do If I Got Bad Advice?
Studies suggest that proper asset allocation over the life of your investments is even more important than the particular securities you choose. It is a broker’s responsibility to recommend products and securities based on your age, risk tolerance and financial/retirement goals.
If you depend upon your brokerage firm or stock broker to recommend a diversified portfolio and believe that improper asset allocation has lost you more than you expected during the recent downturn, Contact Us Now. We have extensive experience in evaluating and prosecuting cases for victims of stockbroker misconduct.