2. Don’t put it all in stocks
When markets are hot and your savings are growing nicely, there’s a risk — especially for beginning investors — of becoming overconfident. When returns are great, it’s tempting to pour all of your savings into stocks.
Don’t do it. It’s safer to spread risk among different types of investments. When one type of investment sinks, other types may rise, giving your portfolio a way to balance gains and losses.
How much of your savings should be invested in stocks? There are many approaches. Money Talks News founder Stacy Johnson suggests you subtract your age from 100, and put the difference as a percentage of your savings into stocks. For example, keep the following percentages of savings in stocks:
- 60 percent if you are 40
- 50 percent if you are 50
- 40 percent if you are 60
What should you do with the rest of your money? Again, opinions vary. Stacy suggests dividing the rest of your savings in half, investing one half in a low-cost intermediate bond fund and the other half in a high-yield savings account that is FDIC-insured. You can find the best rates by visiting our Solutions Center.