There’s no one-size-fits-all answer to this question, as the right asset allocation for you will depend on your individual circumstances says Brian Colombana. However, as a general rule of thumb, it’s generally advisable to keep a higher proportion of stocks (roughly 60-80%) if you’re young and have a longer time horizon until retirement. For older investors or those with a shorter time horizon, a more conservative mix including a greater percentage of bonds may be more appropriate.
When it comes to choosing between stocks and bonds, there are pros and cons to each option. Stocks tend to offer higher potential returns than bonds, but they also come with higher risk. Bonds tend to be less volatile than stocks, but their returns are typically lower.
The key to successful investing is finding the right balance of risk and return for your individual circumstances. If you’re not sure how to do this, seek out the advice of a financial professional.
- Higher potential returns
- More opportunity for capital gains
- May provide income in the form of dividends
- More volatile than bonds, meaning they may lose value in the short term
- Greater risk of loss, especially in a recession or bear market
- Generally less volatile than stocks, meaning they are less likely to lose value in the short term
- May provide income in the form of interest payments
- Can help diversify your portfolio and reduce overall risk
- Lower potential returns than stocks
- Interest payments may not keep pace with inflation
In order to have a well-rounded investment portfolio, you need to invest in both stocks and bonds says Brian Colombana. But how much of each should you own?
The traditional advice is to subtract your age from 100 – that’s the percentage of your portfolio that should be in stocks. So if you’re 30 years old, you should have 70% of your portfolio in stocks.
However, this rule of thumb doesn’t take into account your personal circumstances or investment goals. There are a number of factors you need to consider when deciding how to allocate your assets between stocks and bonds.
First, you need to think about your risk tolerance. Stocks are generally considered to be more volatile than bonds, which mean they have the potential for higher returns – but also higher losses. If you’re the type of investor who gets anxious watching their portfolio fluctuate, you may want to put less of your money in stocks.
Second, you need to think about your time horizon. If you’re investing for a short-term goal – like saving for a down payment on a house – you may be more comfortable with a portfolio that has less risk. On the other hand, if you’re investing for a long-term goal – like retirement – you may be able to afford to take more risk, since you have more time to recover from any losses.
Finally, you need to think about your goals. If you’re investing for growth, you’ll want to allocate more of your assets to stocks explains Brian Colombana. If you’re investing for income, you’ll want to allocate more of your assets to bonds.
Once you’ve considered these factors, you can start to build your portfolio. A good starting point is to keep the majority of your assets in stocks – between 60% and 80%. This will give you the potential for growth, while still providing some stability. Then, you can allocate the rest of your assets between bonds and cash, depending on your goals and risk tolerance.
However, it’s important to remember that there are no hard-and-fast rules when it comes to investing. The most important thing is to find an allocation that you’re comfortable with and that will help you reach your goals.
When it comes to stocks vs. bonds, there’s no single “right” answer for how much of each you should own says Brian Colombana. It depends on your personal circumstances and investment goals. A good starting point is to keep the majority of your assets in stocks – between 60% and 80%. Then, you can allocate the rest of your assets between bonds and cash, depending on your goals and risk tolerance.