How much in stocks should you own?

(Money Magazine) -- I've always used the rule of thumb of 100 minus my age to decide what percentage of my 401(k) to invest in stocks. But now that I'm getting close to retirement I'm wondering whether that's too conservative? Do you think it is? --Martin, Middleton, Wisconsin

I think you need to look beyond rules of thumb when making important decisions about your finances. That's because even though such rules may be helpful in providing general guidelines or ranges, they can't give you a solution tailored to your individual financial circumstances.

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Ultimate Guide to Retirement

• Getting started
• 401(k)s & company plans
• Investing
• Annuities
• IRAs
• Self-employment plans
• Pensions and benefit plans
• Social Security
• Insurance
• Estate planning
• Living in retirement
• Getting help

As I've noted before, this is true whether you're talking about the oft-cited 4% rule for withdrawing money from savings in retirement, the 80% rule for gauging how much income you'll need in retirement and the 10% rule for figuring out how much you should save during your career to have a secure retirement.

It's also the case with the rule of thumb that says you should subtract your age from 100 to determine the percentage of stocks in your retirement portfolio is no exception.

The rule says that when you're 30 years old, you would keep 70% in stocks. When you hit 65, you'd want to be more conservative, and dial back to 35%. The logic is that stocks are more risky than bonds, and you want less risk as you approach retirement.

But the rule keeps changing. As stock investing began to gain more favor during the 1990s bull run, 100 minus your age began to morph into 110 minus your age, as people began to ignore the risks that stocks pose.

We also saw the emergence of the 120-minus-your-age benchmark, when people decided they needed more stocks to compensate for low savings rates.

Given these opposing thumbs, so to speak, a 30-year-old could end up with a stock stake ranging from 70% to 90% and a 65-year-old could have anywhere from 35% to 55% in stocks.

So where does this leave you?

Generally, the logic that you should have less in stocks as you age is pretty sound. After all, if you sustain a big loss early in your career, you have plenty of time for the market to bounce back and you can always save more.

But if you're about to retire and begin pulling money from your portfolio for living expenses, the combination of a major loss plus withdrawals will put a major dent in your savings and increase your chances of running through your nest egg early in retirement.

The real question you face is how much risk are you willing to take with your retirement savings at this stage of your life? Take the 65-year-old with 35% in stocks.

I think many, if not most, investment pros would consider that a fairly conservative stance. Two of the three largest providers of target-date retirement funds (Fidelity and Vanguard) set a stock allocation of roughly 50% for someone retiring at 65. The other (T. Rowe Price) recommends 55%.

But it's not as if lower allocations are unheard of, or espoused only by a radical fringe. The well-known 401(k) advice firm Financial Engines recently introduced a retirement income service that would have someone retiring at 65 with only about 20% of his or her portfolio in stocks.

Ditto for the lifecycle funds of the Thrift Savings Plan, which is the federal government's equivalent of a 401(k). In short, there's no single "correct" percentage.

You need to arrive at a percentage you're comfortable with. Toward that end, one thing to think about is what loss you feel you could stomach.

The higher the percentage of stocks you hold, the bigger downdrafts you should be prepared to handle. To get a sense of what size hits different stocks-bonds mixes might take, you can go to Morningstar's Asset Allocator tool.

Since you're near retirement, you might also look at how different stocks-bonds allocations could affect how much money you can likely draw from your account without running through your nest egg.

To do that, check out T. Rowe Price's Retirement Income Calculator. Consider too the overall wealth at your disposal. If your pool of retirement savings is so large that a sizeable setback wouldn't jeopardize your ability to get the income you need from it, then you may be able to go with a larger dollop of stocks.

The same goes if you have other resources you can tap -- additional company pension, guaranteed income from an annuity, cash value in a life insurance policy or sizeable home equity.

If, on the other hand, your 401(k) isn't huge and it's pretty much all you have, then you probably want to tilt your mix more toward the security end of the risk spectrum. Finally, in retirement especially you want to be mindful of "black swan" risk. No, I'm not talking about the Natalie Portman movie.

Rather, it's the chance that your portfolio might be decimated by a rare but catastrophic market meltdown. We tend to gloss over cataclysmic events in our planning because they're considered extremely low probability events.

But recent research suggests they may pop up more frequently than we've believed. To me, that argues for playing it safer late in one's career and during retirement. I also think it bolsters the case for at least considering adding some guaranteed income to one's retirement investing strategy.

If you go through the process I've described on your own or with the help of an adviser, you should be able to arrive at a stocks percentage that balances your need for returns with your tolerance for risk.

Once you've done that, I wouldn't worry whether that figure agrees with the 100 minus your age rule of thumb, or any of its variations.