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6. Subtract Your Age from 100; Put That Much in Stocks
Now we need to talk about asset allocation. For all your long-term investments, such as retirement accounts that you won't touch for at least ten years, you need a mix of stocks and bonds. Stocks offer the best shot at inflation-beating gains. But stocks don't always go up. That's where bonds come into play: They have less upside potential, but they also do not pack the same risk. So what's your Midas mix of stocks and bonds? Subtract your age from 100 and invest that percentage of your retirement savings in stocks. The rest belongs in bonds. For the stock portion, put 70 percent in U.S. stocks and the rest in international funds. As for the bonds: You should definitely have some lower-risk investments in your 401(k), but rather than invest in a bond fund, look for a GIC or Stable Value fund, which offers a guaranteed return. For your IRA accounts, I am all for owning individual bonds you can hold to maturity instead of bond funds, which are subject to trading and carry more risk.