Probably the happiest period in life most frequently is in middle age, when the eager passions of youth are cooled, and the infirmities of age not yet begun; as we see that the shadows, which are at morning and evening so large, almost entirely disappear at midday–Thomas Arnold 1795-1842, British Educator, Scholar
As you move into your 40s and 50s, your asset allocation should reflect your shorter investing horizon. While there is no one right asset allocation between stocks and bonds at this age, many recommend allocating between 70% (aggressive) and 40% (conservative) to stocks. Some may begin their 40s at the aggressive end of this allocation, and slowly move to the conservative allocation as they near 60. Richard Ferri, in his book All About Asset Allocation, proposes two portfolios (one basic, one multiple assets) that allocates 55% to stocks. Here are his two suggested portfolios:
I’m in my early 40s, and for me, these suggested portfolios are a tad too conservative. My current stock allocation is 85%, but through 401(k) contributions, I’m slowly increasing my bond investments. Even at 40 (and to some of you, that may sound ancient), I have 25 years until retirement and (hopefully) 20 or more years after retirement. So my investing horizon is still quite long. That said, I do find that as my investments grow, my tolerance for risk diminishes. All of which is to say, you have to decide what asset allocation is best for you. Ferri’s two suggested portfolios above, however, are a good place to start.
Published or updated July 15, 2008.