Asset Allocation and Age in the Stock Market

The simple truth is that as you age, you need to be taking your capital and retirement fund out of the stock market.  This is just basics of retirement financial planning.  If your adviser has not made you aware of this, you are in for big trouble when you get close to retirement.  Websites like Finance World recommend that you are only 10% in stocks and 90% in bonds when you retire.  There is one exception that I will explain later.  But in general, this is the asset allocation that you want when you are of age.

The simple reason for this is that stocks are more volatile and risky than bonds.  But the thing is that stocks also give you a better chance at higher growth.  So if you are retired already, you don’t want to be in something that is risky.  You need the money to stay put, but you don’t want it to be eaten up by inflation or be doing nothing either.  Bonds are the best place to be.

The only thing if you really want to stay in equities is to invest in big companies.  So good stocks to invest in for retirement is large cap stocks.  That is because these stocks tend to be less volatile and therefore less risky.  Also, they tend to pay out dividends as well.  That means you can be getting retirement income from them without having to dip into the principle.

The only caveat to this whole thing is if you are wealthy.  If you have enough to pay for your entire retirement, than you may have surplus capital.  You can use that to invest in riskier assets, whether they are small cap stocks, start up companies, commodities or derivatives.  Make sure you get financial advice from a registered adviser before moving forward with any investment strategy.