Sunday, September 21, 2008

Too Little Risk

The most acute long-term risk is, in fact, too little risk. Unless you’re saving a huge chunk of your income in cash, you’ll need consistent exposure to more risky investments like stocks to produce a suitable retirement balance. Keep your stock allocation lower if you must for a few months to sleep at night, but don’t get rid of it altogether.

Your Money - Taking Control of Your Financial Risks - NYTimes.com

Perhaps after last week you want to forget all about stocks. This is a reminder that in the long term the risk is justified. Aside from expecting the government or your family to care for you, saving is the first step to securing your financial future. Once you built up your saving, investing wisely is the second step. While taking on too much risk is not advisable, too little risk could be as bad. One rule of thumb for allocation to stocks is to subtract your age from 100 and use the result as upper limit. So if you are 30 do not exceed 70% in stocks, with the rest in bonds or other asset classes.

1 comment:

Beyond Q8iya said...

76% means i should be bankrupt right about now.