[Paul Butler]

Hi all,
My question is rather simple. I am 56 years old retiree and have a substantial amount of money in a rollover ira. As it stands now I am invested 60% in stock and 40% in bonds. I have lost a large sum of money over the past few weeks and am really nervous of my funds in my rollover. Is this the correct amount for a person my age or should I change to a 50 stocks - 50 bonds split or a 20 stocks - 80bonds split. I also know that I will not be drawing on it until age 59 or 60. I also have a pension through the former company that I retired from.

[ebaines]

The proper allocation depends on your plans for the money and your comfort level with respect to risk. I'd say a 60/40 split between stocks/bonds is not bad for someone your age. Assuming that you plan to withdraw from your IRA from age 60 or so for the rest of your life, this means your investment must maintain its value above inflation for 25 or more years. If you go too heavily into bonds you may find that the appreciation you get can not keep up with inflation. So it's best to stay pretty heavily invested in stocks. However, during those years you can reasonably expect to experience several significant downturns in the investment markets. You need to be comfortable with these downturns, and have faith that for every year where returns are negative there will be other years when your investment returns are very, very good. If you aren't comfortable with this, I would suggest re-evaluating your mix and move to a more conservative allocation, favoring bonds a bit more. Many of the investment house such as Fidelity and Schwab have on-line tools that can help you assess your comfort level for risk - I suggest you try one of them and see what it comes with. See for example:
Fidelity Investments
Whatever you do, you should plan on picking an allocation level and sticking with it consistently for the long term - this means that as stocks sink relative to bonds you shift money into stocks, and when the stock market rises you shift money out of stocks. This is how you make money in the long run - by buying low and selling high. Too many people do the opposite - they shift out of stocks if they see the market decline, and move back into stocks when the market rises. By picking an allocation and sticking with it through thick and thin you come out much better in the long run.

One other note - within your stock allocation be sure to have a well-planned mix of large cap versus small cap stocks, as well as a healthy dose of foreign investment. By diversifying across markets you reduce your risk significantly, which should help you sleep better at night.