Recently I’ve read a number of sources talking about investment behavior of Baby Boomers and Generations X and Y. The surprising thing has been a unanimity of investment allocation. In IRA and 401k accounts, all three groups tend to allocate funds pretty equally to stocks, bonds and short term or cash investments. If you’re a Baby Boomer that makes some sense, though right now bond yields are poor and cash yields are non-existent. But for anyone under 45, it’s the simplest investment decision you can make. You should be 100% in stocks. Period.
This is money that you are not going to need for at least 20 years. Short term ups and down (even big ones) aren’t as important as the long term gain potential of stocks. There has never been a 20 year period where you didn’t make money in stocks. Even if you bought at the height of the market in 1929, by 1949 you’d made money. Remember two things: 1) This is money you won’t touch any of it for 20 years, and won’t use all of it for 50 years or more. Don’t think short term. 2) You generally have only three choices of where that money goes (particularly in a 401k), stocks, bonds or cash. Over time stocks have vastly outperformed bonds and cash.
You are going to need a pile of money by the time you reach retirement. The best chance you have of accumulating that stash is by putting 100% (or close to it) in stocks in your 20s, 30s and 40s in your IRA and 401k accounts.