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Age-Based Advice: Debunking the Equity Myth for Young Investors

Posted by: Lauren Young on December 20, 2008

This installment of age-based advice from a financial adviser comes from Laura Mattia, who is a wealth management principal at Baron Financial Group I’m highlighting her 2009 recommendation for investors ages 25 to 35 because it is different from the financial planning advice I normally hear.

It is often said that a 25-year-old’s portfolio should be more heavily invested in equities since the assumption is that he or she has a long horizon. However, a person in their twenties has yet to experience various life events, such as buying a home, getting married, having children, etc.

As a result, this age bracket may require some of their investments to execute their plans. It is difficult for a twenty-something to truly know where their career is headed, whether they are dependent upon a nice big salary or if they will need access to some of these monies.

The overall concept that an individual should invest, based upon his or her age, is flawed and predicated on certain stereotypes and assumptions that may or may not be accurate. Investing should be based upon an individual’s unique circumstances and his or her needs and goals. This is why it is so important to evaluate each person’s overall situation in a holistic manner before formulating a comprehensive plan. The following key factors for structuring a portfolio should be determined:

The individual’s goals

The time horizon(s)

Individual income and spending habits

Tolerance for risk

Ability to accept risk

It is dangerous to think that a person of a certain age automatically slots into a specific compilation of these factors. However, based on defined assumptions, the attached offers sound advice in terms of equities (which should be divided into large, mid, small, international and REITs), bonds (which should also include international bonds and convertible bonds) and cash (could be CDs, TIPS or money markets). In addition to these asset classes, a small amount of alternative investments such as natural resources and even a long-short type investment, which is not addressed in the attached, should be considered.

Some young investors should be much more conservative than initially thought. It might be more appropriate to be invested in the following manner:

Stocks: 20%
Bonds: 40%
Cash 40%

This strategy offers stability and income as well as minimal growth which will get this investor started. Once they make their big purchases, this strategy should be re-evaluated.

Reader Comments


December 21, 2008 12:40 PM

Your asset allocation is for that of an eighty year old person and reflects the current fear of the market. This loathing of equities reflects that we may be at the bottom. Now everybody loves treasuries and bonds. I say put everything in the stock market, especially now. Most bear markets are not as brutal as this one, i.e. when in the current bear market the dow fell by 27%, it was already the fifth worst drop in the last 50 years. It is at this age that you should put as much as possible to let the power of compounding work for you. If you do it later, say in your fifties or sixties, forget about it, you are too late to the party.


December 26, 2008 12:01 AM

Absolutely correct Peter.

Laura Mattia

January 9, 2009 11:49 AM

The message that I was attempting to get across to the writer was that your age cannot drive how much money you put into equity. What drives that decision is goals and time horizon. Unfortunately what I wrote for Business Week got terribly distorted by whoever took my words and published this article. For an individual who is looking to buy a house in the next couple of years and needs to establish their foundation so that they do not incur unnecessary debt and develop a healthy emergency fund pool, they are not ready to put a lot of money into equity which is really for long term money only. You really need to understand an individual's time horizon - it has little to do with age.
I agree that what happened in 2008 is just part of investing and that bear market declines occur on average every 3.5 years. We should not be afraid of these declines and if you are in a well-diversified portfolio with a strategy on when to buy and sell and that encompasses your goals/time horizons, you are set up to ride the capital markets. The point is that you don't want to be caught selling into a bear market because you need the cash since you are then locking in losses - a recipe for failure.
By the way, some 80 year old people have pensions and do not need their money to live on. In their case, they should have a significant part of their portfolio in equity since their heirs may not be tapping into those funds for twenty or more years. Again - time horizon is key.

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