How should a 22-year old who just inherited $50,000 divide her investments between stocks, bonds, CDs, and money market?
There is no simple answer. Much depends upon the risk-tolerance and goals of this inheritor.
This site should help you make some decisions.
http://www.sec.gov/investor/pubs/assetallocation.htm
When it comes to investing, there is no one-size-fits-all answer, as it depends on various factors such as risk tolerance, financial goals, and time horizon. However, I can guide you through a general approach to asset allocation for a 22-year-old who just inherited $50,000.
1. Emergency Fund: Before considering investing, it's essential to establish an emergency fund equal to 3-6 months of living expenses. This fund should be readily accessible and typically kept in a savings account or money market account.
2. Determine Financial Goals: Consider your financial goals, such as buying a house, starting a business, or retirement planning. These goals will help you decide how long you can leave your money invested.
3. Risk Tolerance: Evaluate your risk tolerance. Young individuals usually have a longer investment horizon, which allows for a higher risk tolerance. If you are comfortable with short-term market fluctuations and have a higher risk appetite, you may lean toward more aggressive investments like stocks.
4. Asset Allocation: As a 22-year-old, with a longer time horizon, you can consider a more growth-oriented portfolio. A common rule of thumb is to subtract your age from 100 to determine your stock allocation. In this case, a 22-year-old might allocate around 78% (100 - 22) to stocks.
- Stocks: Consider investing a significant portion, let's say 70%, in a well-diversified equity mutual fund or ETF. These can provide exposure to a broad range of stocks and help you participate in the growth potential of the stock market.
- Bonds: Allocate a smaller portion, such as 15-20%, to bonds. This can provide stability and income. Consider investing in bond mutual funds or ETFs with tenure and credit quality that align with your risk tolerance.
- CDs and Money Market: Keep aside a small portion, let's say 10-15%, for CDs or money market accounts. These are low-risk instruments that can provide stability and immediate access to funds.
Remember that this is just a general guideline, and you should always consult with a financial advisor for personalized advice based on your circumstances and goals. Additionally, it's important to regularly review and rebalance your portfolio as you get older and your financial situation changes.