At age 50, how do I determine the right investment mix for me?[ Edited ]
This is a common (and great) question! Before I answer it though, I need to be clear about something right up front.
While I can answer the, “How do I determine the right investment mix?” question, I can’t answer the, “What is the right investment mix?” question. The first is about process and applies to pretty much everyone. The second is specific to an individual and will vary depending on the person and his or her situation. So with that qualification out of the way, let’s dive into how someone would go about deciding the right investment mix.
Here are some of the main factors to consider:
When will the money be spent? One key component of the appropriate investment mix question is your time frame. If you’re going to use stock-based investments like your TSP C Fund, you need to have a lot of time. Typically you shouldn’t use market-based investments unless you have at least 5 years before you plan on using the money, preferably longer. The idea here is to try to avoid the possibility that your investments will be worth less than what you put in at the time you need to cash them out – and there’s no guarantee that even 5 years is long enough to ensure this.
On the other side of the coin, it’s also important to understand that you probably won’t be spending all of the money at the same time. So even though you plan to retire in 6 years, you may not spend some of your money for a decade or more.
What do you need the money to do? Is your retirement well-funded or underfunded? If it’s underfunded, that could mean you have to take more risk to give yourself the chance of having your investments grow to a large enough sum to support your retirement dreams. Just know that being more aggressive generally increases your odds of losing money if things don’t go as you plan. On the other hand, if you’ve got enough put away, you might not have to take as many chances with your money.
How comfortable are you with the risk of loss? Finally, regardless of your time frame and the rate of return you need to earn, you’ve also got to examine how comfortable you are with the possibility of losing money in exchange for trying to make more. Investing outside of your risk tolerance could cause you to panic and sell when you shouldn’t. It’s important to be able to sleep at night no matter what the number crunching tells you. If you need to be aggressive but aren’t comfortable with the other end of that stick, it might be time to change your goal.
So there you have some big picture things to think about as you consider your portfolio mix. Bringing these points back to your situation (and the fact that you’re asking), 85% equities might be a bit much. Again though, there’s no way for me to know for sure but I hope this helps you decide!
Thanks so much for your question and best of luck to you!