[Moyer]

[ QUOTE ]
Take a look at these 6 portfolios, especially the losses, to see how aggressive you want to be (I apologize for the lack of columns that line up):

POTENTIAL ODDS OF WORST WORST
AVERAGE LOSING MONEY YEAR OF YEAR OF
RETURN IN ANY ONE YEAR 75 YEARS 30 YEARS

Portfolio A 11.0% 1 in 3 -47% -25%
Portfolio B 10.5% 1 in 4 -42% -22%
Portfolio C 9.8% 1 in 5 -38% -19%
Portfolio D 8.5% 1 in 6 -29% -13%
Portfolio E 7.5% 1 in 7 -23% -9%
Portfolio F 6.3% 1 in 8 -16% -4%


Column 1 is the portfolio name: Portfolio A is the most aggressive (with the most amount of stocks), and Portfolio F is the most conservative (with the least amount of stocks, and highest amount of fixed income). Column 2 is the expected return for the portfolio after investment expenses.

Columns 3, 4 and 5 have to do with the risk. How frequently does this portfolio have a losing year? Portfolio A loses about 1 out of every 3 years, but Portfolio F only loses about 1 out of every 8 years.

Column 4 is what a really bad year could look like, and it the worst year in the last 75 years (which includes the crash of '29 and the Great Depression). Portfolio A lost 47% in a year. Portfolio F, with a lot of fixed income, still lost 16% in one year (when interest rates shot up in a big hurry).

Column 5 is what a typical bad year looks like, and it is the worst year of the last 30 years. Portfolio A lost 25%, and Portfolio F lost 4%.

So, concentrating on the loss columns, what kind of losses would you feel comfortable with? Risk and reward go together, and to get a higher return, you have to be willing to accept periodic losses.

When you have an idea of what kind of losses you'd be able to handle, then you can convert the portfolios to target allocations:

Portfolio A: 100% stock
Portfolio B: 90% stock, 10% fixed income
Portfolio C: 80% stock, 20% fixed income
Portfolio D: 60% stock, 40% fixed income
Portfolio E: 45% stock, 55% fixed income
Portfolio F: 30% stock, 70% fixed income


[/ QUOTE ]

Which portfolio do you think would be most appropriate for someone that has 17 years until retirement? I'm doing some research for my mother. Right now she has 100% in stock. I understand the columns you posted, but I'm dreading the thought of trying to explain that to her. Thank you all for your help.