How to Measure and Reduce Risk in Your Stock Portfolio
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Here's your money briefing for Friday, January 28th. I'm J.R. Whelan for The Wall Street Journal. For many Americans who've had money to invest, the stock market has been the only game in town. But while that heavy exposure to stocks can produce sweet returns and good times, the recent sharp sell-offs are a reminder of the risks that go with it. And that kind of volatility can put older Americans in or near retirement in a tight spot.
Some people have maybe lost some of the fear that they might otherwise have of stock market declines because they feel that they've been rewarded for riding them out in the past. The problem is that as you get older, you have less time for your portfolio to recover. And there's no guarantee that stocks are going to recover quickly.
On today's show, our retirement reporter Ann Turgason will be here to discuss how financial planners say older Americans should allocate their investments and how to determine how much risk your portfolio can handle. That's after the break.
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How did the episode introduce the stock-market risk affecting older Americans?
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Thanks for being here. Thanks. So, Anne, let's get a sense of where things stand right now. What do the numbers tell us about how much money older Americans have invested in stocks?
Well, it's hard to know for sure. Fidelity is looking at among its 20 million 401k investors. It shows that about 40% of people who are in their 60s hold approximately 70% or more of their 401k money in stocks. And some numbers from Vanguard show that for people who are between 65 and 74, nearly 20 percent have almost 100 percent in stocks. So these are people who have portfolios that are considered, you know, sort of more aggressive than these companies might recommend.
Yeah. So how does that compare with what financial planners say that baby boomers investment allocation should look like?
You know, it's really hard to say. You know, I mean, everybody has sort of their own individual situation. And so it's hard to give like a number that everybody in a certain age group should have. But financial advisors say that, you know, as people get older, the general accepted kind of conventional wisdom is that as people get older, they should be reducing the percentage that they hold in stocks and increasing the percentage that they hold in bonds. You know, the goal is to have a diversified portfolio. And then over time, the idea is to take money out of your stock allocation so that you're less at risk or you're less vulnerable if a bear market comes along.
So why is this generation invested so heavily into stocks?
Well, there's a bunch of reasons. You know, I think the long bull market explains a lot. I mean, for a lot of baby boomers, you know, they may have started investing in the 70s or the 80s. And the 80s is when we saw the bull market in stocks kind of date back to. So a lot of baby boomers sort of came of age in an era in which stocks, you know, generally declined. provided pretty positive returns. A lot of baby boomers also started investing in 401ks before the advent of target date funds, which are sort of intended to sort of do the work for you.
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