Financial Planning for Generation X & Y Women
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Is there a recommended ratio for a particular percentage of stocks versus bonds?
Hi. I have two questions. Im about 45 years old and divorced. My first question is related to the distribution of your assets and investments at this time. And I know you cant really comment in great detail, but is there a recommended ratio for a particular percentage of stocks versus bonds when you think, at 45, I might be working on for at least another 20 years?

And my second question is, at what age would you advise investing in long-term health [long-term care] insurance if your company doesnt provide it for you?
Michael A. Masiello:
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Wow, a loaded question for sure. In general women could use 110 minus your age--in this case 65%--as a guide for stocks versus bonds or other options. This is only a guideline and should be discussed with a financial planner at length. You will most likely need your investments at age 67, normal Social Security age to start, to last for a long time and will need the potential of stocks for both gains and losses.

Regarding the Long-Term Care, yes it's an issue, but make sure you have the rest of your financial house in order and then tackle this. Good luck, Mike

Martina A. Jimenez:
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You should meet with a financial advisor to discuss your investment allocations, retirement planning, long-term care, and insurance protection. It is not possible for anyone to give you a recommendation based on just age. Any advisor would need more details about your goals and objectives and [to] discuss your risk tolerance, age, time horizon and retirement age.

This is the best way for a recommendation to be made! Please work on getting a professional to assist you.

H. David Whalen:
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Please, let me begin by providing a disclaimer:
U.S. stock prices are more volatile than those of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuations than stocks but provide lower potential long-term returns. U.S treasury bills maintain a stable value (if held to maturity), but returns are only slightly above the inflation rate.

This is a general answer because I don't know enough specific information regarding your current portfolio, but in general, depending on your risk tolerance--conservative, moderate or aggressive--I would suggest the following if it were moderate:

Age 45 (50%-stocks, 40%-bonds, 10%-cash position). As you get older you can increase the bond position and/or use other conservative investments and decrease the stock position. You may also want to consider, a variable annuity that may provide you with a monthly income for life. Please consult your financial advisor.

2nd question: Long-Term Care Insurance-you should evaluate this product now. Two of the factors that will determine your premiums are age and health status. If your health is good and you are 45 years old you may qualify for reasonable premiums. Please consult your financial advisor.

Steven Rodriguez:
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Thank you for your question. Not having a properly allocated portfolio is one of the big mistakes in saving for retirement.

This is actually a difficult question to answer. Keep in mind that you need to be able to keep your asset allocation in both good years and bad years, so on one side you have to measure how much risk you can take. On the other side, there is a certain amount of risk you need to take in order to outrun inflation and reach your investment goals.

Prior to structuring your portfolio, several things need to be determined. First, what is the average rate of return plus future contributions you will need to achieve your overall goal? Second, what is the appropriate level of risk you are comfortable with? In other words, in a particularly negative market, you could tolerate a decline in your portfolio value of what - 5%, 10%, 20%? Only you could answer this question.

The old rule of thumb used to be that should subtract your age from 100 - and that's the percentage of your portfolio that you should keep in stocks. However with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 120 minus your age. For example, if you are 45 you should keep 75% of your portfolio in stocks.

Please keep in mind that this is only a guideline, not a recommendation. You should adjust this guideline in order to help you meet your own individual goals. I would also recommend you consult a financial advisor in order to customize your allocation.

As for your second question; Long-term care premiums can be hefty the older you are. A 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy. By buying earlier, however, when you are in your 50s and in good health, you may be able to pay less per month.

Keep in mind that a long-term care policy makes the most sense for those with retirement assets of between $100,000 and $2 million. Also realize that most people need long-term care because of the effects of disease (such as Alzheimer's or a stroke), not old age. When considering purchasing a policy, look at your family's health history and ask yourself how likely it is that you may need long-term care.

Hopefully, you may never need long-term care, but if you do, having a long-term care insurance policy can help protect your retirement assets from being drastically depleted over a short period of time.

Gary Silverman, CFP:
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You are correct in that we can't give you a good number. Your age and story only tell me that you do not need to access this money for 20 years; it does not tell me how much risk you can stand. Since in almost all 20-year periods stocks outperform bonds (albeit not this last one), the technically correct answer would be 100%. There are two main problems with that.
The first is technical. If you have all your money in stocks and the stock market goes down, how do you shift more money into them when they are low? For that reason most projections put stock holdings in a 50-80% range. Then you'd rebalance between the stocks and bonds periodically (though most investors don't).

The second problem with 100% stocks is that most people would totally freak if they saw their portfolio cut in half, as they would have during this bear market (and several before this one). What do people do when they freak? They sell. Buying high and selling low is not a recommended investment strategy. That is why, when we take on new clients, we spend a lot of time trying to determine their risk tolerance. The less your risk tolerance, less stocks should be held. All that to say I haven't a clue what range to recommend to you.

Rebecca Schreiber CFP:
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With 20 years left to retirement you have enough time to take on enough stock exposure as you can consistently tolerate. In yoga it's called "the point of gentle tension. Start with a 50-50 stock-bond portfolio and adjust as necessary. Another option is to use a target date fund like a 2030 fund.

For long-term insurance, call the providers and find out their age cutoffs. Like life insurance, younger applicants enjoy lower premiums. Starting the policy now may lock in the rate. Good luck!

Claudia James:
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The general rule of thumb for portfolio diversification ratios is 75% stocks and 25% bonds when an individual is young and first entering the workforce. When they reach retirement age the ratios flip to 25% stocks and 75% bonds. Since you are somewhere in the middle I'd suggest a 50%-50% split; however, before you make any investment moves, I'd recommend you meet with a fee-based financial planner who will conduct a variety of risk assessments on you. These ratios are general, and there are other things to consider when investing.

The general age for [starting] long-term health care investments is 50-55.


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