Time can be your ally and, should you experience losses from your investments, you may have many years ahead to make a recovery. In this light, you may want to seek to maximize growth by concentrating your portfolio in stocks and growth mutual funds. Yet even when you are at or approaching retirement, you may want to consider maintaining a portion of your assets in stocks. Your retirement could last 20 years or more, and the returns from stocks may help you keep pace with inflation. As you begin to approach retirement, you may begin to shift some funds from stocks to bonds.
Bonds tend to be more stable than stocks and are designed to provide a predictable cash flow.
Shifting some assets into bonds, therefore, may help moderate the overall volatility of your portfolio and provide more attractive returns than moving directly into short-term investments, such as cash and cash equivalents. At retirement, preservation of your capital will become a primary concern and may necessitate a shift to shorter-term investments like U.S. Treasury bills, CDs and money market funds for some of your assets. These exhibit virtually no volatility, but provide little or no protection against inflation. For this reason, you should continue to maintain a position in equities. How uch you allocate to short-term investments will depend on the level of access to your funds you require.