How should I invest the money?
- When should I start saving for retirement?
- Where should I save my retirement money?
- How should I invest the money?
- How should my strategy change as I get older?
- How much money will I need in retirement?
- Will pensions and Social Security be enough?
- How much should I save?
- What if I can't save enough?
- How can I reduce the amount I'll need?
- What if I'm running out of time?
- I'm saving a lot but will still fall short - what now?
- When can I retire?
To build a nest egg large enough to see you through retirement, which may last 30 years or more, you'll need the growth that stocks provide.
The stock market returned 10.4% a year on average between 1926 and 2006, versus just 5.9% for bonds, according to research firm Ibbotson Associates. Given stocks' superior returns over the long haul, most financial advisers recommend that investors whose retirement is more than 20 years away hold at least 3/4 of their portfolios in stocks and stock funds.
Of course, a stock-heavy portfolio can give you some hair-raising moments (or years). For example, during the 1973-74 bear market, U.S. stocks lost 43% of their value - and it took the market three-and-a-half years to recoup those losses. The stock market also suffered a 47.6% decline during the bear market at the start of this decade. It's been suffering in 2008 as well.
If you don't have the stomach for steep downturns, you might increase your allocation to include more bonds or bond funds. Holding, say, 70% of your portfolio in stocks and 30% in bonds will let you capture most of the long-term growth of stocks while sheltering your investments to a certain extent during market downturns.
