What’s the Right Mix of Stocks and Bonds?

That depends on several factors, including how comfortable you are with risk and – most significantly – how long it will be until you plan to retire and start pulling money from your nest egg.

When you're young (and have many years before you’ll need your money) the long-term growth potential of stocks outweighs their long-term risks, so your retirement assets should be concentrated in stocks, not bonds.

As you get older and closer to retirement, it makes sense to sacrifice some of that potential for stability. After all, you want to be sure that money is available when you need it. So over time you should decrease the percentage of your assets invested in stocks and increase the percentage in bonds.

But what’s the right stock/bond breakdown for you? The old rule of thumb was to subtract your age from 100 and invest that percentage in stocks and the rest in bonds. (For example, a 30-year-old would put 70% of her portfolio in stocks and 30% in bonds.)

However, with Americans living longer lives (and therefore spending more years in retirement) many financial planners now recommend 110 or even 120 minus your age.