Stocks for all ages

Conventional wisdom will have you shifting assets out of stocks and into bonds as you age and approach retirement. Don’t follow that blindly, though, as stocks can still serve older investors well.

The rationale for the rule is that the stock market can be volatile, and retirees won’t want to have to sell some stocks after the market has swooned for income to pay their bills or otherwise support themselves. While younger investors can simply wait out downturns, retirees have less flexibility.

On the other hand, stocks tend to average significantly higher growth rates than bonds, so a sharp shift into bonds — or other “safer” investments such as certificates of deposit (CDS) — can really slow your portfolio’s growth. (Stocks outperformed bonds in 96% of all 20-year holding periods between 1871 and 2012, and in 99% of all 30year holding periods, says finance professor Jeremy Siegel.)

Making matters worse, in periods of very low interest rates, many bonds won’t even keep up with inflation, so over time the purchasing power of your money can shrink. Inflation has averaged 3% annually over long periods.

Then there’s age. “About 1 out of every 3 65-yearolds today will live past age 90, and about 1 out of 7 will live past age 95,” says the Social Security Administration. If you retire at 62 and then live to 95, you’re looking at 33 years of retirement. A good portion of your assets could stay growing in stocks for at least the first decade of your retirement.

An old rule of thumb had you subtracting your age from 100 to see what percentage of your assets should be in stocks. So if you were 65, you’d have 35% in stocks. With people living longer, though, many advisers now suggest subtracting from 110 or 120; that would have a 65-year-old investing 45% or 55% of assets in stocks.

For more retirement guidance, try our “Rule Your Retirement” service at Fool.com/services. You might also consult a good financial adviser.