What Percentage of My Investments Should Be in Stocks?
The percentage of your investments that should contain stock depends on your situation. The Securities and Exchange Commission and certified financial planners agree the closer you are to retirement the less your investments should be in stocks, which can be volatile. Conservative portfolios invest up to 5 percent in stock. Aggressive portfolios invest up to 90 percent. Financial planners have questionnaires and model portfolios to help you determine which level of risk is best for you.
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Expert Insight
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A good financial planner recommends portfolios that will allocate assets to meet your retirement goals. To find a suitable planner, ask how they are compensated and what certifications they hold. A fee-based planner with fiduciary responsibility puts your interests first and does not accept commissions based on stock or security recommendations. These planners can be found through national organizations that require an exam before planners obtain credentials, such as the Certified Financial Planner Board of Standards or the National Association of Personal Financial Planners.
Considerations
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How well you tolerate the ups and downs of the stock market should help guide your investment decisions. A financial planner will help you gain insight into the amount of risk you are willing to take. The planner can help examine your reactions to stock fluctuations and design a course of action. For instance, she may ask you what you would do if your stock lost 50 percent of its value. Would you sell it all at a loss, buy more or do something else?
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Time Frame
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How much time you have to save and invest makes an impact on the amount of stock in a portfolio. If you are young, you have time to recover from losses with continued savings and riding market fluctuations. On the other hand, if the market tumbles at the time you planned to retire, you may find yourself working much longer than anticipated.The longer your time frame, the more stock your portfolio can tolerate.
Warning
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Stock investing is often misunderstood and not recognized as a gamble. You may have a record year only to lose twice as much the following year. A financial planner will help you manage some of this volatility by recommending a portfolio that includes other investments such as bonds. A financial planner also can help you assess your liquidity needs.
Diversification
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A diversified portfolio should include a broad range of investments, including stocks. Stocks should be from a broad range of industries to manage fluctuating business cycles. A financial planner can help you create a diversified portfolio that meets your needs and goals.
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References
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