Nervous Investor? Change Your Risk Recipe

Chip Cutter, AP Business Writer

NEW YORK (AP) — As bond prices keep rising, many investment portfolios may get out of balance. Bonds will make up a larger percentage of a portfolio - maybe too large for some investors' comfort. So, is it time to change the asset allocation, or mix of investments, in yours?

Many analysts say "no." Investors should be sticking with their strategic asset allocations, says Thomas Idzorek, chief investment officer at Morningstar's Ibbotson Associates. "People shouldn't be chasing returns."

Investors should check their portfolios once or twice a year to see if the breakdown among stocks, bonds and cash is in line with the amount of risk they're willing to take. Analysts recommend allocations based on an investor's age. Younger investors' portfolios should primarily be in stocks because they have more time to recover from potential losses. Those closer to retirement or with children going to college should own less stock, and more bonds and cash.

Investors make mistakes when they abruptly change allocations or let emotions guide their decisions, says John Merrill, chief investment officer of Tanglewood Wealth Management. The investors who fled stocks in early 2009 missed out on the rally that has sent the S&P 500 up 75% since March of last year.

This table from Morningstar lists recommended asset allocations for investors expecting to retire in five, 15, 25 or 35 years. It also has recommendations for people with conservative, moderate or aggressive approaches to investing. It can be a helpful guideline to help you assess where you stand:

Years until retirement    Strategy    US stocks    International stocks    Bonds    Cash    Other

35    conservative    52% 30% 13% 0%  4%
moderate    57    33    6    0    4   
aggressive    59    34    2    0    4   
25    conservative    49    25    20    0    6
moderate    58    29    7    0    5   
aggressive    62    31    3    0    5   
15    conservative    37    16    35    1    10
moderate    52    23    17    1    7   
aggressive    62    27    6    0    6   
5    conservative    26    10    44    3    17
moderate    40    15    30    2    13   
aggressive    53    20    16    1    10

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