You're Never Too Old for Stocks

Sound financial advisors suggest that the closer to retirement you are, the less risk you should be taking in your portfolio. But at what ages should you change your investments? Perhaps you recall this venerable rule of thumb: Stocks, as a percentage of your portfolio, should equal 100 minus your age.

The Risk of Being Too Safe
In your senior years, there's a natural tendency to emphasize income and principal stability rather than capital appreciation.

But being too conservative can also be risky. If you rely too much on bonds and other income-oriented investments, you expose yourself to the insidious risk of inflation, which over time can pose a threat to your standard of living. For example, over 15 years, a 4 percent annual rate of inflation can shear the purchasing power of your dollar almost in half.

Are the risks of stocks still greater? Yes, but historically, investing in stocks is more profitable than investing in bonds and other debt obligations. Common stocks have recorded an average yearly total return of twice that of corporate bonds.

A Good Rule of Thumb
Base your asset allocation on your risk tolerance and your time horizon before you retire or you'll need access to these funds. Divide your goals into three time periods.

Two years or less. Invest in highly liquid investments such as money-market funds and CDs.

Two to 10 years. Invest in bonds, which have a guaranteed maturity.

10 years or more. Invest in carefully diversified stocks because they are long-term winners. The most important rule? Never be forced to liquidate an investment at the wrong time.

Please contact Mary Ludwig, Development Director at 712-732-5127, for more information.

The information on this site is not intended as legal, tax or investment advice. For such advice, please consult an attorney, tax professional or investment professional.

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