While you want to invest your retirement money prudently to avoid losses, that doesn't mean you should stuff your portfolio with bonds, says
CNBC commentator Jim Cramer.
When investing in Treasurys or stable value funds, "you're saying, this money — I'm not going to use it to generate more wealth, I just want to keep it safe," he explained on his "Mad Money" show.
"I know retirement money is meant to be sacrosanct with little risk taken, but it's possible in this era of very low interest rates to be too cautious, too prudent and too risk averse. There's a point where all of your prudence becomes recklessness."
Historically, stocks outperform bonds. From January 1926 through March 2009, the S&P 500 index generated an average yearly return of 9.4 percent, compared with 5.6 percent for long-term Treasury bonds, according to Morningstar's Ibbotson Associates.
Cramer recommends that those
- younger than 30 own no bonds
- in their 30s devote 10 to 20 percent of their retirement portfolios to bonds
- in their 40s allocate 20 to 30 percent
- in their 50s devote 30 to 40 percent
- in their 60s to retirement allocate 40 to 50 percent
- in their retirement devote about two-thirds
Meanwhile, with year-end approaching, don't forget about retirement planning issues.
U.S. News & World Report cited several steps you can take before Dec. 31.
One is to make sure you're giving all you can to your 401(k) plan. If you're 49 or younger, you can contribute as much as $17,500 to your 401(k). You'll want to contact your company's human resources department quickly if you seek to increase your contribution over the rest of the year.
"You can't call on Dec. 29 and say you want to put in an extra five grand," Joyce Streithorst, a financial planner for Frisch Financial Group, told U.S. News. "They need to have a little lead time of at least one paycheck and sometimes two."