Determining Initial Investment Allocations

Q: My retirement plan at work requires me to make investment choices now, even though I'm still at Level One. What's a good balance for me at this stage?

A: This is a very common situation, and illustrates the value of reading and learning the principles being taught in the Level 3 and 4 columns, even if your focus is currently on Level 1 and 2 priorities. (What Are the Four Levels?) You never know when a job change or other circumstance may require you to make investing decisions, and it'd be nice to have that learning curve behind, rather than in front, of you should that time come sooner than you expect.

Most company retirement plans offer at least three choices: stock market (a blue-chip S&P 500 type fund), bond market (a high-quality bond portfolio), and a money market. Many plans offer more than just these three basic choices. Regardless, the information on the Upgrading: Easy as 1-2-3 page  can help you decide which investments to make (even though you may not be doing any Upgrading). Step 1 will give you an idea of the general stock/bond guidelines we recommend for investors at different ages. Generally speaking, we don't recommend putting long-term investment money into the money market option of your retirement plan.

If your plan choices are limited, this may be all the information you need. If they are more extensive, you can use the additional detail provided in Step 2 to further diversify. Your plan materials will likely include descriptions of each fund so you can match it up with the corresponding risk category in the "portfolio mix" grid. You may not match the allocations exactly, but hopefully you can get close.

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