NLIC.org

Joseph Said:

Investing in a 403B. Which percentage would you place of the following options and why? See fidelity list:?

We Answered:

Wow, I can't believe your employer allows a list like that. It only confuses the employee more. Also, your question needs a little more background, primarily an understanding of your "risk tolerance". That means how sensitive will you be to short-term price fluctuations? What if your portfolio was expected to produce an annual return of about 8% over the very long run, but wouls be expected to decline as much as 20% occasionally? What would you do if that decline occured almost immediately? This is the reality of all investing.

Now, you've indicated a time horizon of 25 years, which is good, so I'll assume you're going to have moderate risk tolerance and should be invested with a bit of a tilt toward long-term growth. The conservative alternative is to invest in things that only fluctuate slighly, limiting your risk in any given year, but also greatly diminishing the expected return of the portfolio over the very long run.

A reasonable portfolio would be 65% equities, 25% bonds, 10% "other". Break that up as follows:

Equities:
25% US large cap
10% US small cap
10% Foreign developed countries
20% Foreign emerging markets

Bonds:
10% Corporate
10% US treasury long-term
5% US treasury short-term

Other:
5% gold
5% real estate