My husband would like to retire in about 7 years. We have an existing investment portfolio which may not accumulate enough money to retire on by then. We are seriously thinking of investing more money in stocks, or even an index tracker like the Fidelity Moneybuilder Index Fund, hoping that this could increase the value of our retirement portfolio by that time. Although I get the impression that five or more years is a 'long-enough' period to achieve any kind of growth, would it be wise (or Foolish!) to buy stocks so close to retirement, bearing in mind that the moarket could take a dip JUST BEFORE retirement kicks in?
If you are inclined to take this view considering our circumstances, would you suggest alternative kinds of investing?

You are absolutely correct to worry about a dip (or recession) right when you have to withdraw money from an all equity portfolio. This can cause your funds to run out prematurely.

This is why it is essential to build an adequate cushion to protect yourself from recession. Most people feel that this cushion should be three to five years of living expenses in cash equivalents (CD's, Treasury Bills, short term Treasury Bonds,etc).

Since you are seven years from retirement, I think you need to focus on two key activities:

1) agressive investment until 5 years prior to retirement to try to reach your minimum retirement amount.

2) building your cushion

Up until five years prior to retirement, I was in nearly 100% equities. Which equities to invest in depends mostly your own personal knowledge of investing and your tolerance to seeing your portfolio go down in value (which it will do from time to time). If you are beginners, you should look at things like S&P500 Index Funds or the Foolish Four. These have historically appreciated around 12% and 19% per year respectively.

I am 52 now, and plan to retire at 55, and I went through similar thinking a few years ago and this is the plan I came up with and am following:

At about 45, I made a decision that in retirement, I would always hold five years of living expenses in Treasury Bonds, live from one year's worth in money market, and invest the rest in equities.

At 50 (five years prior to retirement), I began building my cushion. I purchased one year's living expenses of 5 year Treasury Bonds (that will mature just as I retire at 55).

At 51, I bought one more year's worth of 5 year treasury bonds.

At 52, I bought one more year's worth of 5 year treasury bonds.

At 53 I will buy one more year's worth of 5 year bonds.

At 54 I will buy one more year's worth of 5 year bonds.

At 55 I will retire!! The bonds I bought when I was 50 will mature, and I will put the cash in my money market to use for current expenses. This will leave me with a cushion of T-bonds that will mature each year for the next four years. However, I will also look at the market, and if it is up I will liquidate one year's living expenses and buy another year's living expenses of 5 year bonds. If the market is down, I will not liquidate any stocks. I will wait until it is up.

This is my simple plan. Of course, it was highly dependant on having enough saved to be able to implement it. If I hadn't started saving as early as I did (when I was 30), I might have been forced to settle for a smaller cushion (maybe only 3 years) and hope that a severe recession would not occur right after retirement.

-rkm