Most professional planners advise that if you are saving for retirement, the younger you are, the more money you should put in stocks. Over the long term, stocks are more likely to provide favorable returns and capital appreciation than other commonly held securities. As you age, you have less time to recover from downturns in the stock market. Therefore, many planners suggest that as you approach and enter retirement, you should begin converting your more volatile growth-oriented investments to fixed-income securities such as bonds.

A popular rule of thumb is to subtract your age from 100. The difference represents the percentage of stocks you should keep in your portfolio. For example, if you are age 40, 60 percent (100 minus 40) of your portfolio should consist of stock. However, you may want to modify the result after considering other factors, such as your age, risk tolerance, and financial goals.

Investors are retiring earlier and living longer than in years past. For example, if you accept an early retirement package at age 57, it's feasible that you'll be living off your retirement fund for as long as 30 years or more. You'll have plenty of time for your portfolio to recover from any unexpected downturns in the markets, and with inflation and the rising costs of medical care, you will need more growth than what most fixed-income securities typically deliver. You may want to keep a significant portion of your portfolio invested in stocks well into your retirement years.

If you're investing for something other than retirement, the popular rule of thumb probably doesn't apply. If you'll need access to your investment dollars within a few years (e.g., to purchase a home or to pay your child's tuition), you should consider investing more of your portfolio in less volatile securities, such as money market or short-term bond mutual funds, rather than in stocks. If your investment goals are short term (e.g., two to five years), you won't have time to recover from a downward swing in the markets, and you risk that your investment dollars may not be there when you need them.