Dear Liz: You recently wrote that if you need your money in 10 years, you should not be in stocks. My husband and I are both in our early 70s and will need some of our money in 10 years. What do you recommend instead of stocks?
Answer: Financial planners recommend retirees keep a portion of their portfolios in stocks or stock mutual funds to offset the erosion of buying power that comes with inflation. Portfolios with some exposure to stocks are less likely to “fail”—be depleted before the client’s death—than those that are entirely invested in bonds and cash. The recommended percentage of stocks can vary depending on the advisor and the client, but often ranges from 20% to 50%.
Some planners like to make sure their clients have cash equivalent to two years’ worth of expenses and short-term bonds equal to three years’ expenses, to avoid the necessity of having to sell stocks during a downturn. But your portfolio’s proper asset allocation depends on a number of factors, including your other sources of income. If your living expenses are covered by Social Security and pensions, for example, you may be able to tolerate a higher exposure to stocks.
All this is worth discussing with a fee-only financial planner who can take a look at your financial situation and give you individualized advice. You can get referrals at Garrett Planning Network (www.garrettplanningnetwork.com) and the National Association of Personal Financial Advisors (www.napfa.org).