Description

The majority of advice online is too generic to take seriously for your personal finances. The 60/40 portfolio (60% stocks and 40% fixed income) is used in academic research and might be the median portfolio for retirees - but that doesn’t make it appropriate for you.

How should you construct your own portfolio for now and the future? Think about when you are going to spend your money and divide it into three categories:

1. 1-2 years: Invest this in CDs, checking/savings accounts or money markets
2. 3-7 years: Invest in a mix of bonds (or a bond fund) 
3. 7+ years: Invest in stocks

I recommend taking out a piece of paper, dividing it into 3 sections and write out the actual dollars you might spend in each section, beyond what your income will cover.How might this apply to you? 

1. If you are young, just starting your career maybe you want $30k for a home down payment (1-2 years) and the rest is for retirement (7+ years)
2. Middle career with a young family: Maybe $50k towards college costs (3-7 years) and the rest for retirement (7+ years)
3. Near or in retirement: Living expenses (1-2 years and 3-7 years) and the future (7+ years).

The point is: apply this to your situation with actual dollars. At that point you can figure out the percentages in each category: stocks, bonds and cash.

Resources:

• Which Accounts Should I Fund First?
• How to Create a Paycheck in Retirement