Last week, I (Amanda) wrote about the mistakes people make with their rollover IRA accounts.
Let’s say you’ve opened a new rollover IRA. Or maybe you opened a traditional or Roth IRA… or you just started a 401(k).
If you’re like most Americans, you’re likely nervous about how to choose your investments. Don’t worry. There are two secrets you need to know to make a solid portfolio.
First, figure out your allocation and risk tolerance.
As we discussed in our issue “Overcoming Your Biggest Character Flaw,” stocks hold the highest risk, but also offer the biggest reward. The least risky are certificates of deposit (CDs) and U.S. Treasury bills.
Depending on your age, you’ll want to pick your investments accordingly. If you’re in your 20s or 30s, you have more time to recover from potential losses, so take advantage of more stocks (and their growth). Think of a split around 90% stocks and 10% bonds or 80% and 20%. Remember, this mix changes depending on your comfort level and personal circumstances. If you’re very risk-averse, fewer stocks are a better option.
If you’re in your 40s or 50s, move more toward fixed income like bonds. By the time you’re 50, you’ll want to be at about 60% stocks and 40% bonds.