Managing your money for the long run

 

"What percentage of your assets should be in stocks? Well, years ago, a common rule of thumb was: Subtract your age from 100 and that will give you the right number. So 30-year-olds were told to have 70 percent of their money in stocks. That figure was fairly conservative, and eventually some experts began saying subtract your age from 110, which would have made the number 80 percent in stocks at age 30.
But people are living longer, and I think that 110 figure is still low. So my suggestion is to subtract your age from 120, which means if you are 30 now, 90 percent of your money should be in stocks.

If you buy a total stock market index fund, and just about all the major brokerage firms offer one, you will get exposure to the entire U.S. stock market. Your U.S.-based holdings will be diversified.
But you want to participate in growth outside the United States, too. So you need to buy a total international stock index fund as well.
I would split the stock holdings this way: 80 percent in the total stock market fund and the rest in the international fund.

If you were, say, French, or Chinese, or Mexican,I’d suggest much the same thing. Own a diversified portfolio with stock from around the world, not just your home country.

Buy a total bond index fund. It will hold U.S. Treasuries and bonds of all durations — short, intermediate and long-term issues. And if you wanted to put 20 percent of your bond holdings in an international bond fund, it would be fine with me.

Each year, you can shift 1 percent of your money over to bonds and leave everything else alone. That means as you get older, more of your money will be in bonds. That will be a good thing because it will hedge the risk of a sudden fall in stock prices as you approach a time when you will need the money."