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Wednesday, June 17, 2009
Carrie Schwab Pomerantz :: Townhall.com Columnist
Taking the Mystery Out of Diversification
by Carrie Schwab Pomerantz
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Poll
Will the Dems' health care Christmas Present to America be an improvement or detriment to our health care system?


At 55, you'll want to look at a few things, such as:

-- How close are you to retirement? Do you plan to work for another 10 years? If yes, you still have some time to go for growth. Fifty percent in stocks may be an appropriate mix for someone your age. But if you still have a number of years before retirement, you might be comfortable with an asset allocation that includes as much as 60-65 percent stocks.

-- What are your cash needs now and in the near future? Consider putting any money you'll need within the next five years in bonds, CDs or other fixed income investments that are generally less risky.

-- Do you have an emergency fund that can cover you for six to 12 months? This should definitely be kept in something safe and easily accessible, such as a money market account.

You don't say whether the $200,000 you've inherited is the total amount you have for retirement. If you have other savings or investments, make sure you look at all your assets as a whole before investing this new money.

How much you decide to put in each asset class depends to a large extent on how much risk you think you can handle now and over time. I suggest you speak with an advisor to help determine the right mix for you. Come retirement, you'll be glad you did.

Thanks for the great question; it's at the heart of being a successful investor.

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About The Author

Carrie Schwab Pomerantz is a Motley Fool contributor.

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Reply # 1
Date: Jun 19, 2009 - 9:34 AM EST
There used to be another asset class...
...that financial advisors recommended. You mentioned it in passing. It is gold (or precious metals). But gold really isn't an investment, it is a hedge against currency devaluation or inflation. Since gold isn't really an investment per se, in normal times I wouldn't hold much. There is a cost to buying/selling and storing it somewhere. But given the huge debt the government is running up and the loss of faith in the dollar by other countries and investors, we can only imagine the infationary pressures we will see in the next few years. Given that you have such a large amount of money suddenly at hand, I'd be inclined to put a goodly size chunk of it into the purchase of gold.

There are other ways to look at stock allocation, as well, besides just industry segment. Some companies are in a growth mode and reinvest their earnings but don't produce dividends. Other companies are more mature and offer dividends to their investors. Dividends are taxed a bit differently and usually aren't as attractive unless held in a tax free account or re-invested in additional stock purchases. But in tumultuous times like these, a secure dividend can be the difference between a gain and a loss. With the extra $200K, you may also find your insurance requirements have changed.

I really agree with Carrie's column. The question and answer are good for discussion purposes, but you really ought to consider doing some research or finding an advisor you trust and examining your entire financial situation.
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Reply # 2
Date: Jun 17, 2009 - 1:28 PM EST
Common Sense Investment advice.

Good Article.

Should be taught in schools.

Liberals oppose a quality and well rounded educaiton because educated people tend to vote conservative.
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