No single retirement formula fits every investor

The average American now has more investment choices than ever before, which is great — and a problem. Because all of those choices make it hard to know which options are best.

Such is the dilemma facing this week's letter writer.

"I was wondering if you could discuss in your column what constitutes a balanced portfolio in saving for retirement; i.e., what percentage should be in bonds, various types of stocks or mutual funds, . . . laddered CDs, precious metals (gold coins?), collectibles (whatever that means), real estate (and what types of real estate) and what other investment types I haven't thought of in this list," Fred wrote in an e-mail. "Also, how does this mix change as you age?"

That's an important question, Fred. But I'm not sure you're going to like my answer.

The fact is, there are plenty of people who will offer rules of thumb when it comes to the proper investment mix as you approach retirement. For example, if your company has a 401(k) plan, it probably offers "preset mixes" based on how far away you are from retirement age. And just about any financial Web site will give recommendations about which mutual funds you should invest in, and in what proportions, as you move through various stages of life.

But the question is, how much should you depend on such general formulas?

For more insight, I talked to Roger Smedley and Sharla Jessop of Salt Lake-based Smedley Financial Services.

"The first thing that comes to mind is, it would be nice to give cookie-cutter information, but the reality is that there isn't a cookie-cutter pie chart," Sharla says. "It needs to be individualized based on how old the person is, what their risk tolerance is, how close to retirement, and how much will come from fixed sources of income at retirement . . . and how much has to come from investments.

"Then you have to weigh very carefully how to divide that up,"

Granted, Roger and Sharla advise people on finances for a living, so they have an interest in recommending that savers seek individualized attention. But I think they make a valid point.

Roger says the key to preparation is deciding how much risk you're willing to take.

"We've found that too many people take too much of the wrong types of risk, and the same people are taking too little of the right types of risk," he says, especially when it comes to investing in their own company's stock.