Don't Put All Your Retirement Eggs in One Basket: 5 Tips for Allocating Retirement Funds

Allocating your retirement savings is an important part of investment planning. By diversifying your funds, you won't hurt as much if one stock takes a dip. Keep the following questions in mind as you plan your retirement-savings portfolio.

What Kinds of Investments Do You Want?

Retirement savings are generally held in one of three types of investments:

• Stocks: The stock market is volatile, so stocks are very risky in the short term. However, they often recover over time and can mean big returns on investment in a retirement savings plan.
• Bonds: Bonds are less risky than stocks, but they offer more modest returns. These are a good middle-of-the-road choice if your risk tolerance is low.
• Cash: This includes basic savings accounts, CDs and money-market accounts. Cash is very stable, but your money won't be able to grow much.

What Is Your Risk Tolerance?

Investment planning typically involves some level of risk. Certain types of investments, such as stocks, have greater risk associated with them than more stable investments like bonds and money-market accounts.

How Much Time Do You Have?

The longer your investment plan, the more risk you can handle. Generally, people in their 20s should put up to 80 percent of their retirement savings into stocks and the remaining 20 percent into more stable assets. In general, 30 years is long enough to ride out the market swings and give you a favorable return upon retirement. People within five years of retirement need to look for stable investments since they don't have the time to recover if the market plummets.

What Kind of Return Are You Looking For?

When it comes to retirement planning, big risk often equals big return. Investing in more volatile assets will usually yield bigger returns over time than investing in small-risk, small-reward assets.

Do You Need More Advice?

If your situation is more complicated than normal, or if you'd just like some additional help with investment planning, contact a qualified financial adviser. She can look at your entire situation and recommend a retirement plan that works best for you.