Don't Let Iraq Throw Your Investing Off Track

The market's rocketing. Bombs are dropping. And you're feeling the urge to do something to your portfolio.

But neither a rally nor a war should change the basic way you invest. How much money you should have in stocks, bonds and cash largely depends on how old you are -- not on the minute-to-minute updates coming out of Baghdad.

If you know what you own and if your allocations are in order, then you should do nothing. To borrow a quote from Warren Buffett: "Occasionally, successful investing requires inactivity."

But if you haven't touched your portfolio in six months or more, then now is a good time to inspect it. Here are some guidelines to follow.

Time On Your Side

You have decades to invest if you're just in your 20s or 30s. And when you're putting away money for your retirement, you will want to keep most of it in stocks. Of course, that's assuming you can cope with the wild swings in the market.

You shouldn't expect the market to deliver the intoxicating gains you saw during the '90s. But over the long haul, you should be able to make more money in stocks than in bonds. Over the last 10 years, the 8% annualized return on the Vanguard (VTSMX Quote)Total Stock Market Index fund, which tracks the entire U.S. stock market, still beats the 7% return on the firm's (VBMFX Quote)Total Bond Market fund. And that's after a wrenching three-year bear market for stocks and a bull run for bonds. In terms of valuations, stocks are more attractive than Treasuries right now.

If you want to be aggressive, you can keep 80% of your money in stocks (spread among large, small and international stocks) with the remainder in bonds and cash.

A Little More Protection

The less time you have to invest, the more of your money you should keep in safer assets. If you're in your 40s or 50s, you still have 10 to 20 years before retirement, but you should start moving more of your money into bonds and cash. A 60/40 allocation between stocks and bonds is a solid plan for someone who doesn't need current income from that portfolio and wants growth from those investments.