The Great Stock vs. Bond Debate

Target-date mutual funds split your money between stocks and bonds in a way the managers think is appropriate to your age. They usually follow the traditional path — about 50 percent in stocks on your retirement date.

One example would be Vanguard's Target Retirement 2020 Fund, suggested for people around 55 today. It currently holds 66 percent of your money in stocks — a reasonable amount if you're in good health and have substantial assets and a job that's reasonably secure. It also helps if you won't be making withdrawals until you're in your 70s — giving stocks even longer to grow.

But what if you have only modest savings, a lot of debt, and will have to start living on your nest egg as soon as your paycheck stops? You can't afford the risk that the market will fall.

Even though you're just 55, you might pick Vanguard's Retirement 2010 fund. It's supposedly for people who retired last year, but also works for younger savers who want to invest more conservatively. The 2010 fund currently holds 48 percent in stock and will be reducing that. To dial back even more, consider Vanguard's Retirement Income Fund, which pares its stock component to only 30 percent.

Fidelity's target-date Freedom Funds invest roughly the same way. T. Rowe Price is more aggressive — for people willing to take bigger chances.

If you're rolling over a 401(k) into an individual retirement account, do-it-yourselfers can follow one of the strategies above. They work best when you choose well-diversified mutual funds rather than individual stocks and bonds. It's easier to make withdrawals from funds than to have to decide which securities to sell.

The key to peace of mind, however, is saving enough while you're still employed. "If you arrive at retirement with a reasonable sum of money and live modestly, you don't have to invest aggressively," says Craig Israelsen, who teaches personal and family finance at Brigham Young University. You can dial down your stock ownership and do just fine.

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Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW. She writes regularly for the Bulletin.