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Right way to diversify

- Alan Lavine and Gail Liberman

It's tough to figure out how much to keep in U.S. stocks, international stocks, bonds and cash.

Much depends upon your age, time you intend to invest and how jittery you are about losing money.

Typically, if you have at least 15 years to invest, you can consider keeping 80 percent of you money in U.S and international stocks. The rest should be in bonds and cash.

What if you are nearing retirement and have about 10 years until you hang up your spikes and move to sunny Florida or Arizona?

Sixty percent in U.S. and international stock funds, with the rest in bonds and cash is not a bad mix.

When you retire, you need income. Plus, you must make sure the value of your investment keeps pace with inflation. Stocks have historically grown at about 7 percent more than the rate of inflation. However, some predict that the market might not do as well in the coming years.

Whatever mix you settle on, make sure you rebalance your mutual fund holdings annually to maintain the same percentage mix of investments. Take assets from your overperforming assets and put them in underperforming assets to maintain the same mix.

These are just a few guidelines. Everyone is different. So consult with a financial planner or a mutual fund group's financial adviser to determine the right mix for you.

Also stick with high-quality investments. Retirees, for example, might consider funds that invest in blue chip high-dividend yielding stocks.

On the bond side, stick with U.S. Treasury bonds, corporate or tax-free municipal bonds, rated A to AAA by Standard & Poor's. These are bonds issued by financially strongest entities.

Don't forget. Bond prices and interest rates move in opposite directions. If rates rise, bond prices fall. The longer the maturity of the bond, the greater the price decline. So for less fluctuation, stick with short-term and intermediate-term bonds or bond funds.


Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).

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