It would certainly be nice if the right investment mix was simply a matter of your age, but such is not the case. While it is true that investors should take a closer look at risk as they get older, there is no hard and fast rule to determine exactly how much of your portfolio should be in stocks, how much in bonds and how much in fixed income. The right investment mix depends on a number of factors, including your retirement plans and how much guaranteed income you can count on.
Before you can build a portfolio designed for a 53-year-old investor, you must first assess where you currently stand. Finding your current asset allocation is a necessary first step, so gather up all your financial documents and add up every dollar you have invested. Then determine how much of that total is invested in stocks and stock mutual funds, how much is in bonds and bond funds and how much is in fixed income investments like certificates of deposit and money market accounts.
The amount of guaranteed income you can rely on in retirement has a lot to do with your asset allocation and your investment style. If you can rely on a sizable pension or annuity payment, those funds can stand in for the bond or fixed income portion of your portfolio, allowing you to invest more in stocks than would otherwise be wise. For instance, if you receive a monthly pension of $3,000, that would be roughly equivalent to the return on a $900,000 investment portfolio, assuming an annual withdrawal rate of 4 percent. Having that much in guaranteed income means you can invest the rest of your portfolio more heavily in stocks if you wish, in hopes of a higher return and larger overall nest egg.
Years to Retirement
The number of years you have until retirement plays a big role in determining your proper investment mix. If you are 53 and thinking about taking early retirement in just a few years, it makes sense to start booking any profits and taking a large part of your stock market money off the table. But if you are planning to work well into your 70s, you could justify a more aggressive approach, with perhaps as much as 60 or 70 percent of your portfolio in stocks and stock mutual funds.
As a 53-year-old investor, you should be taking full advantage of every tax-deferred investment for which you are eligible. If your employer offers a 401k or 403b plan, put as much as you can into that account. If you are eligible for a traditional or a Roth IRA as well, putting extra money aside in those plans can lower your tax bill and boost your retirement savings. The sooner you get started with your investment portfolio, the faster your money can grow.
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