Retirement Planning / How much to put into equities in your 401(K)?
May 13, 2022
How much to put into equities in your 401(K)?
How do you know how to allocate to equities or bonds in your 401(K)? And how should that change as you get older? I know that as you get older you should hold more bonds. Our 401(K) provider doesn't offer that help, and I can google search this stuff and ask my coworkers, but for those of you who may have good thoughts and smart opinions, what do you do? I'm 38 and am not a risk taker not a risk hater.
Replies (6)
May 13, 2022
@OlivaIWJ, are you familiar with the rule of 110? Your stock allocation should be 110 minus your age, so that's 72% in your case. Your bond allocation should be the rest, 28%. It's not a perfect rule, but it works as a rule of thumb. As you get older, you'll be allocating less and less to equities, and more to bonds. Hope this helps.
May 13, 2022
@Jalen984, Ah, haven't heard of that one!
May 13, 2022
@OlivaIWJ, I agree with @Jalen984. The only thing is, I like the equity allocation a little higher. If you look at historical data, equities have returned way more than bonds. In your case, you still have another ~25 years until retirement, so I'd put more money into equities because chances are they will do better than bonds over the next 25 years. Try an 80-20 (stocks-bonds) mix.
May 13, 2022
@OlivaIWJ, I would also look into a target date fund. It's one fund that includes equities and bonds where the split is determined based on when you plan to retire. These funds usually have the date of your retirement included in their name so it's easy to spot. It takes the guessing game out of how to split your money across all the choices of funds. One fund and you are done.
May 14, 2022
@JosieFQE, I was leaning this way too!
May 24, 2022
@OlivaIWJ, TDFs tend to be more conservative because they also allocate into bond funds.