How Much Should You Invest in Stocks?

Despite steep losses in 2008, retirement experts continue to emphasize equities

June 5, 2009 RSS Feed Print

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Jonathan Shelon is the portfolio manager for Fidelity's family of target-date funds, known as Freedom Funds. The 2050 fund is 90 percent invested in equities, he notes, and the percentage decreases in each successive five-year period. The 2010 fund, for example, is 50 percent invested in equities. Shelon says that all of the funds are designed to roll over into an income fund 15 years after the target date is reached and that the income fund holds only 20 percent of its assets in equities. Even including the bear market, he notes, Fidelity's 2010 fund has averaged 5 percent annual gains in its 12-year history, and that's precisely what it was designed to do.

[Also see 4 Myths About Target-Date Funds.]

Implement your shifts in stages. As with portfolio rebalancing, any major change in your holdings—in mutual funds as well as individual stocks—should be made in stages. By spacing out your trades, you'll guard against the risk that you would be buying or selling equities at a bad point in a market cycle. And if you're not comfortable with the equity weighting in the target-date fund aligned with your retirement plans, you can easily shift into another target-date fund that better matches your personal risk profile.

Act. "The average 401(k) investor is not as engaged as we would like them to be," says Michael Doshier, Fidelity's vice president for workplace investing. He notes that only 1 in 7 Fidelity plan participants rebalances a portfolio in any given year. The bottom line: Many people are more likely to tune up their cars than their retirement portfolios. Don't be one of them.

Tags:: stocks,; investing,; stock market

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I use a varying percentage in stocks which is based on the current market PE. The percent I keep in stocks ranges from 87% when PE down to 10.4 or below (market about 35% undervalued) to 37% when PE up to or above 21.6 (Market about 35% overvalued). I readjust quarterly. The historical average for the PE using actual earnings, is about 16 over past 50 years. When market is at the average PE I keep about 62% in stocks. I use the last highest actual earnings to assess if the current market price is fair, high or low.
I feel this formula adequately protects me when market starts to reach a bubble, while still giving me a fair exposure to equities. It also takes advantage when stocks are bargain priced. My underlying assumption is the belief that the market generally reverts to the mean.

Joe M of FL 11:47PM February 10, 2012

i currently allocated 95% of my net worth into stocks. since then, i have seen over a 70% return on them (in less than 4 months). I believe that if you want to invest in stocks, you need to know exactly what you're investing in, this will increase your odds of generating a better return by making an informed decision.
Right now is the absolute best time to invest in my opinion, and i'm not alone in that thought. In fact, Warren Buffett and many other highly regarded investors and business leaders are investing heavily in this period.

Tony of MO 5:40PM June 21, 2009

we tend to forget our time horizon for retirement.holding bonds and cash only is nice for the short term but inflation will eventually eat up what returns you get from cash and bonds.
should you actually leave money to family members, the time horizon becomes 50 to 70 years at least. stocks might be able to beat inflation but cash,cds,and bonds sure as heck won't.
so, would it be wise to hold a larger percentage of stocks in your portfolio-example 65% 35 cash and bond

jim for of TX 10:11AM June 18, 2009