Karen Johnson, a Seattle-area homemaker, wonders if she should "get into the stock market."
But instead of shifting savings to stocks, she and her husband are paying off their mortgage and putting what is left over into bank certificates of deposit.
The Johnsons' ultraconservative approach, say financial experts, is both laudable and questionable: praiseworthy, because they won't have to make expensive monthly house payments; questionable, because they haven't put even part of their long-term savings into stocks.
The rule of thumb, say financial advisers, is to have a diversified financial game plan that encompasses stocks as well as bonds and extra-safe money-market or savings accounts.
With stocks, the types of companies you select will probably change as your circumstances change, says Kenneth Janke, president of the National Association of Investors Corp. in Madison Heights, Mich.
Selections should be based on your age, family circumstances, and employment - what advisers call your "stage of life."
This is true whether you're investing in mutual funds or in specific stocks, as shown in the chart accompanying this story.
The table comes from a report prepared several weeks ago by Standard & Poor's Corp. for clients of Fidelity Investments. It reflects the theory of so-called life-cycle investing: Seek aggressive growth of capital when you're young, and transition toward a balanced growth-and-income position by retirement.
Early savers. "When you are young," such as in your 20s and 30s, "you should aim for maximum growth," says James Fraser, president of Fraser Management Associates, a consulting firm in Burlington, Vt.
Pick stocks "in the information/technology sectors," where sales and earnings may post above-average growth, he says.
In the S&P chart, Seagate and Cisco, makers of hardware for computing and networking, fall into this category, recommended for singles. One step down the risk scale, in S&P's "young marrieds" column, are some tech stocks that are deemed slightly less risky: Oracle (software) and Electronic Data Systems (computer services).
In mutual funds, maintain a core holding such as a fund that invests in large companies across many industries, but seek possible market-beating returns with an aggressive-growth fund, a small-company fund, or a high-tech fund.
Middle years. You still want growth, but your stock picks might shift toward blue-chip companies with a strong international presence, Fraser says.
Even under S&Ps "mature families" heading, few of the stocks pay significant dividends.
Retirement. In your middle 60s and beyond, you will want to look for stocks that offer high dividends, to provide current income, as well as the potential for continued growth in share price.
The stocks might include utilities and banks. But even if you are retired, "you will want to stay in the stock market," Fraser says.
His rule of thumb: subtract your age from 100. If you are 65, you would want to have at least 35 percent of your assets in carefully selected stocks.
At any stage, pick stocks with high ratings from services such as Value Line or S&P, experts say.
Got a question about mutual funds, retirement, taxes, or some other detail of financial planning? Send them here. We'll get answers from some of the nation's top financial experts.
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