Creating the ideal retirement portfolio
By Gordon Powers, Sympatico / MSN Finance
Sadly, many people have found out too late that stocks are suitable only for money that they won't need for several years. No one knows the ideal time horizon for holding stocks but you can be certain that it's extremely risky for money that you think you'll need in a year or two.
And if you didn’t know this before, 2008’s meltdown brought it home with a vengeance.
Older investors, in particular, need to be wary of market downturns as they enter what York University prof Moshe Milevsky has labelled the "retirement risk zone" — namely, the period just before or after they leave work.
This is because the weak market performance during this critical period can erode their nest egg, leaving them without sufficient time to recover.
What's the ideal mix then? Well, a blend of 35% stocks and 65% bonds is likely the right combination for most of those heading into retirement, suggests research from Russell Investments Canada. Over time, you get roughly the same result as 100% stocks but with a lot less aggravation. Click here for a look at the past 28 years using this strategy.
While a stack of cash can provide stability, it offers little in terms of longer term growth and may not last long enough, Russell believes. On the other hand, even though a stock-only portfolio will provide that higher long-term growth, it comes with more uncertainty than most investors can handle.