Retirement plan decisions made easy
Drill Down: Picking Your Investments
You are going to split your portfolio into two chunks: bonds and stocks. The stocks will be further subdivided later.
Your first step is to choose the allocation between stocks and bonds. Take into account how risk averse you are by placing yourself into one of three categories:
- Aggressive: I’m in the upper third of willingness to take risks. I don’t mind playing poker for money. I’m optimistic about the long run. If I have a bad result, I can shrug it off and keep going.
- Moderate: I’m in the middle third of willingness to take risk. I can have fun buying a lottery ticket, but I’d never spend much money gambling. If I lose money in an investment it shakes me up, but I try not to over-react.
- Cautious: I’m in the lower third of willingness to take risk. Playing poker or slot machines for money makes me uncomfortable, even for small stakes that I can afford to lose. I worry about a lot of things in my life, including family and work.
Now think about how many years you have until you will begin taking money out of your 401k plan. That provides us with the following table, showing how much of your portfolio you should have in stocks. Put the rest in bonds.
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Lesson 1: What the Heck is a 401k, and What’s So Great About It?
Lesson 2: Contributions to Your 401k
» Lesson 3: Investments “Cook Book” Approach
Lesson 4: Investments: How Investments Work
Lesson 5: Loans and Hardship Withdrawals from Your 401k
Lesson 9: Your 401k, Your Other Assets, and Your Life
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