When it comes to investing in the stock market, it's important to know when the right time is to exit. Generally, it's recommended that you get out of the stock market around age 70, or even sooner. This is because by that age, your goal is to preserve what you have rather than trying to make more money. It's also a good idea to have specific information about when you'll need your money in order to make an informed decision about where to store it.
Ideally, any money that you need within two years should be kept in cash or cash equivalents.Once your short-term needs are taken care of, you can consider investing in bonds for money that you'll need in three to five years. Money that won't be needed for five to seven years or more can be invested in stocks. Your age plays a big role in determining how much risk you're willing to take on with your investments. Generally speaking, the younger you are, the more risk you can tolerate.
As you get older, it's important to reduce the amount of risk in your portfolio.The common rule for assigning assets by age is that you should have a percentage of shares equal to 100 minus your age. For example, if you're 40 years old, then 60% of your portfolio should be in stocks. The stock market has been volatile lately and it's normal to wonder if we're headed for a decline. While some investors may be able to make predictions about the direction of the market, no one can say with certainty what will happen.
If you bought stocks when prices were higher, then you may end up selling them for less than what you paid for them.Buying stocks after taxes, outside of a retirement account, is one way to prevent Uncle Sam from benefiting from his investment prowess. Holding between 20 and 30 percent in stocks is a way for even conservative investors to maintain some opportunity for growth and keep up with inflation. This is why target date fund managers gradually move from stocks to bonds and cash as the investor approaches retirement.A variety of factors can shape an investment strategy, including retirement age and the assets needed to maintain the lifestyle. Alex Doll, CFP and financial advisor at Kohmann Bosshard Financial Services in Cleveland recommends that people in their 20s and 30s investing for retirement do nothing while the market is volatile.
He also suggests investing in 529 plans which are pre-established mixes of equity index funds and low-cost bonds.Finally, Roth IRAs and HSAs (health savings accounts) are great options for all ages since all growth from these accounts is tax-free. Charles Schwab Corporation offers a full range of brokerage, banking and financial advisory services through its operating subsidiaries.For everyone else who has money but isn't sure what to do with it, it's important to remember that solid advice like “buy cheap, sell expensive” has its limitations. Having liquid assets is necessary for many retirees who may be trying to qualify for a mortgage or retirement home. You don't want any money that you need for short-term spending in the stock market since there's a greater chance of losing value.Nicholas Scheibner, CFP of Baron Financial Group in Fair Lawn, New Jersey suggests offsetting stock holdings with bonds as you get closer to needing the money, even if this strategy hasn't worked well this year.
Bonds from recent decades have generally risen in value when stocks fell but this hasn't been the case this year which has caused losses for portfolios of stocks and bonds of all types.It's understandable if you feel like selling your shares when prices are low but it's best to have a plan based on your own circumstances rather than reacting to what the market is doing right now. Offsetting stock holdings with bonds is a good idea as you get closer to needing the money.
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