How to Achieve the Right Mix of Stocks and Bonds

Most retirees follow conventional wisdom when it comes to asset allocation, and try to balance their nest eggs between stocks and bonds. But how do you achieve the correct mix?

The old rule of thumb was to subtract your age from 100 to get the percentage of your portfolio you should keep in stocks. For example: If you are 40, you should keep 60% of your portfolio in stocks; if you are 60, you should keep 40% of your portfolio in stocks.

But with people living longer, many advisors now suggest using 110 or 120 minus your age to determine the percentage of stocks in your portfolio: if you are 60, you should keep 50% or 60% of your portfolio in stocks.

Allocating to bonds can be difficult in certain market environments. Today, thanks to a booming stock market, many investors have a higher percentage of equities in their portfolios than they originally intended. They know they should allocate more to bonds, but with equities performing well and interest rates on bonds at record lows, it’s a difficult choice to make.

Having bonds is important, however, to protect your portfolio in the event of an equity-market downturn. And there are many types of bonds to choose from, increasing the odds of finding the comfortable balance between return and safety. These include short-term, intermediate-term, and long-term bonds, as well as government, high-yield, global and municipal bonds.

Your advisor can help find the bond type and allocation that will work for your individual circumstances and goals.