Here's part 7 of a Money magazine series on 10 rules for building wealth that I'll be covering over the next few days. Today their suggestion is to go heavy on stocks. The details:
The more time you have, the more risk you should take. If you're just starting out, 80 percent to 100 percent of your assets ought to be in stocks. The simplest trick? Subtract your age from 120: That's the percentage you should have in stocks; the rest should be in bonds. "If you have, say, 30 or 40 years, what happens over the next three months or even three years doesn't matter. If you need the money in two years and it drops 40 percent in one year, that's a problem," says Stuart Ritter, a certified financial planner with T. Rowe Price.
Basically, all they are talking about here is asset allocation -- picking the right mix of stocks and bonds for your age as well as your investing temperament. For more on this subject, see Why Asset Allocation is Important and Market Timing Doesn't Work, 4 Rules for Asset Allocation and Using the Eighty/Twenty Rule for Asset Allocation. Also, don't forget to rebalance your portfolio every year or so -- it's another important factor in making sure you maximize your investment returns.
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