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Get it, Keep it, Use it: How to Invest at Every Age

Posted by: Lauren Young on December 19, 2008

In our recent Investment Outlook issue, I did a short story on age-based investment tips for 2009 focusing on investors 25 to 35; 35 to 55; and 55 to 75. Although no one is named in the story, I interviewed dozens of financial advisers for my piece. I received a tons of great advice I couldn’t include, and that’s why I’m posting tips from different investment experts here.

This advice comes from Leon C. LaBrecque, who has a slew of smart tips for investors. He also has a slew of titles: JD, CPA, CFP, CFA, and managing partner of LJPR, LLC, an independent fee-based wealth management firm in Troy, Mich. LJPR specializes in providing retirement and financial solutions to individuals. He has a lot to say on the subject of age-based investing, but it does it so eloquently, I didn’t want to trim it much.

25-35: Get It: You’re in accumulation phase. Here what matters is the amount you can save. Market fluctuations aren’t too important to you; they’re sales along the way. So the key thing is to get money into the pile and keep saving.

Pay Yourself First: Remember to pay yourself first. Everyone seems to set a budget on saving what’s left after taxes and expenses. Look around where you live: someone makes less than you and is just as happy. Set aside 10% of you gross pay for yourself in your 401(k) or Roth IRA. When you get a raise, split it with your 401(k) or Roth: you get half, it gets half.

Equities Are King: Every long-term study shows that equities (stocks of companies) will outperform other asset classes. However, individual stocks can clobber you if you don’t own enough. In addition, you need to spend time and energy researching those stocks (time that could be spent on more fruitful activities, like making money). Look into equity mutual funds. Watch the fees. Look for good long term funds with low expenses. Index funds are a good starting point.

Go Global: The world is flat. You need to participate in the whole global economic growth. So make sure you not only invest in US equities, but in international equities as well.

Small Can Get Big: Through history, small stocks have outperformed big stocks. See if you can name a big company that wasn’t once a small company. Add a small index fund into your mix.

Your Recipe: For someone accumulating, you can weather a lot of market motion. You could have about 20-30% of your portfolio in bonds or fixed income, 25-40% in large US equities, 10-20% in small equities, and 15-30% in International equities. You could add a small taste of emerging markets, like 5-10%, or 5-10 in a commodity-based fund.

35-55: Keep It: At this phase, you’re in a preservation mode. Here you should be getting toward ‘critical mass’, where your investments make more than you contribute. For example, suppose you have a 401(k) plan with $250,000. You make 8% on your investments, which gives you an addition of $20,000. The maximum you can contribute to the plan (if you’re 49 or under) is $16,500. You money is adding more than you are. So here, volatility becomes an issue: you want more consistent return and safer return.

Become a Value Shopper: At this phase, investors should start looking at the growth/value split. Value investing is a method that looks to finding the relatively lower priced stock in a market. For example, value indexes will look at a group of stock, like the S&P 500, and split them into the lower relative priced group and higher relative priced group. History shows that value outperforms in the long run, while growth will dramatically outperform for shorter periods. Value asset classes can be large, mid or small cap.

More Airbags: In the preservation phase, you want more regular income and don’t want to rely on capital appreciation. Here, you want to add more bonds into the portfolio. You bonds should look like your equities, globally diversified. Watch out for putting too many eggs in one basket, like high-yield. High yield bonds are of companies that have lower credit ratings (junk bonds).

Stay Global: Staying global with your investments is important in the preservation phase. Make sure you have a mix that encompasses US and international equities.

Watch the Middle: A lot of investors look at stocks as large-cap or small-cap. There is an asset class of mid-cap stocks which has a good feature for the preservation investor: these are stocks that are not yet giant, but have survived long enough to quit being small. Historically, the mid cap asset class has done quite well versus large caps, and the risk is lower than the small cap asset class.

Season to Taste: A critical discipline for this part of your life is to rebalance your investments. As history has shown us, markets can be very volatile. Rebalancing allows you to automate your selection. Market goes down? A rebalance takes money from your cash and bonds (which have stayed relatively up) and buys into equities (which are down). Market goes up? The rebalance lets you take some profits off the table and put them in safe assets. You don’t need to get carried away; an annual rebalance should give you most of the benefits of rebalancing.

Stash Some Cash: On top of your retirement portfolios, you’d want to accumulate 3-6 months expenses in a decent insured money market account. Of course, you never want to have any significant credit card balance. Use them and pay them off.

Kiddos? Starting the family? The college costs for your kiddos will be staggering. Attack the problems as soon as possible. While the tots are in diapers, set up a §529 plan for them. Pretend you’re sending them to a nice private school. Persuade grandma and grandpa and whoever likes them that a tax-free college fund is a great investment tool.

Your Recipe: For a 35-55 year old in preservation mode, for your retirement portfolio: 5% in cash (for rebalancing), 25-35% in a mix of US and global bonds, 15-25% in US large equities (maybe about half of that in a value type fund), 10-15% in mid cap US (again maybe half in value), and 10-15% in small cap equities (ditto on the value). 15-25% in international equities. You may want to keep a portion (like 5% or so) in emerging markets and real estate.

55-75: Use It: At this point in life, you’re considering using retirement funds to either support or to supplement your lifestyle. In this phase, volatility becomes a problem, but you have to remember that your major enemy is not the market, but losing purchasing power.

Income is King: Investors tend to look at their net worth as the key indicator of how they are doing. Instead, you should focus on your income and how well it is doing. Make sure you have an ample position in bonds and stocks that pay dividends. Be sure that your portfolio is generating enough income for your needs. Value equities, and bonds, as well as real estate, are the key generators of income.

Ladders: For part of your portfolio, consider the old simple notion of a ‘ladder ‘of bonds or CDs. This is where you have a series of bonds or CDs maturing at different dates. For a retiree who wants income, you might have five years of distributions in a ladder of bonds maturing in each year of the next five years (or every six months or whatever you like). This ladder should count as part of your total allocation, but allows you to weather five years of storms at a time. In addition, as you use one step of the ladder, you set up another one as you rebalance your portfolio.

Watch Your Mandatory Distributions: When you attain the age of 70 ½, you have to start taking money out of your IRA. The required distribution starts at around 4%. Many retirees wait until they’ve achieved 70 ½ to take the distribution. This throws them into a higher tax bracket, plus has the notion of providing a 70 ½ year with a lot of income. Consider taking a smaller distribution earlier, like 3 or 4%. Then when the minimum distribution starts, you’ll already be taking money out of the IRA, plus you will have reduced the balance. Remember, someone is going to buy a trip to Florida with your IRA; it may as well be you.

Rebalance: Rebalancing is a time-proven technique for reducing risk in a portfolio. In a distribution portfolio, you can rebalance your equities to take profits or seize opportunities. If you choose to ‘ladder’ a portion of CDs or bonds, your rebalance will re-set the ladder to the later rungs. In addition, you can re-set your allocation slightly more conservative at different points, like every five years or so. You might be 60% in equities from 55-60, and 55% in equities from 60-65, and so forth.

Cash: You should consider having one-year’s expenses in a quality money market account, or a split of 6 months in a money market and 6 months expenses in a 6-month CD. When it gets more than one-year, invest it in an income producing investment.

Recipe: At this juncture, you want a significant portion of the portfolio in short-term income investments, with a concentration on income. Figure up to 5 years distributions in short term bonds or a bond ladder, and a total of 35-50% in bonds or income investments. 10-15% in equities, with a focus on dividend paying investments (value) and 10% each in mid and small cap (concentrations value). Have 10-15% in international. You may want to avoid the exotic investments but could consider 5-10% in real estate: they aren’t making any more of it.

75 plus: Pass It. At this juncture in your life, you want and probably need income and potentially, you may want to pass on something to your heirs.

Annuities: One problem in planning is creating a guaranteed stream of income. One way to accomplish a lifetime income stream is to buy an immediate annuity. This can be particularly attractive for investors who have gains in variable annuities that they’ve purchased in the distant past that have appreciated. You can roll a variable annuity into an immediate annuity with no current tax consequences and pay the taxes as you receive the annuity payments.
The annuity will pay for your life (or both of you, if you choose).

Banks and CDs. It makes sense to have one to two years worth of funds in insured bank account and CDs. A good idea is to have about 3 months expenses in an insured money market, and have 6 months expenses in a six month CD, 1 year CD and 18 month CD. You can add on a 24 month CD as well. Shop the banks and mind the total FDIC insurance amount.

Recipe: Believe it or not, the safest mix of investments historically is not a 100% bond portfolio, but a 20% equity and 80% bond portfolio. Older retirees could still get some appreciation on their investments though the equities, while using the bonds to generate income. It also makes sense in a retirement portfolio to have the required minimum distributions set aside for a few years in specific bonds or short term bond funds.

Appreciated Stocks or Funds: If you have some IBM you bought in 1983, or some GE you inherited form you mom and dad and there’s a large capital gain, you may want to hang onto it. Under the current law, property that passes on death receives a step-up in basis. So if you paid $3,000 for some IBM and its now worth $20,000, if you sell it, you’ll pay capital gains tax. If you keep it and pass it on to your heirs, they will receive it at the value at the date of your death. No capital gains.

Reader Comments

sarah miller

December 20, 2008 4:47 PM

This would make a great investment. Water News – Green Business Spotlight H2Om Water with Intention
Wow. After all of my internet surfing and blog posts, I finally came across a product that caught my attention. Just yesterday, I was browsing the bottled water section at Whole Foods when I came across a new brand with a really cool looking logo and labels that read “Joy”, “Peace”, “Health”, and “Prosperity” featuring instructions to visualize this intent while drinking the contents. Intrigued, I bought some and brought it home. It tasted fresher and cleaner than other waters - and hopefully my chosen intent (Prosperity, of course), will manifest.

Now, my curiousity was piqued even more so I chose to visit the company website. H2Om has a very interesting story to tell. The water itself comes from a natural spring water source in San Diego, from the 420,000 acre Cleveland National Forest. Bedrock mortars and metates indicate that Native Americans have enjoyed this spring for over 14,000 years - and it is filtered to a depth of 300 feet before rising to the surface through the hardened granite. The company then treats it with UV light, submicron filters it, and cleanses it with Ozone which is MUCH more efficient than chlorine at removing bacteria. The water is then treated with audio frequencies, sounds, music,color and light according to its intended purpose.

Scientific studies have shown that water is impressionable, and can hold intent or thought frequencies. As our bodies are 90% water, it makes sense to me that drinking this kind of water could have a positive impact.

Also from the company website:

“A portion of our proceeds will benefit the International Water for Life Foundation, the Love Planet Foundation, an environmental education organization dedicated to the protection of the planet for future generations.”

Awesome! And it was reasonably priced to boot.

It is refreshing to see that this Southern California company is leading the way and setting new standards in the bottled water industry while simultaneously inspiring people to participate in creating a better world by focusing their thoughts on creating positive intentions and eco awareness. So if you haven’t gone to the site while reading this, here is a rundown of H2Om Water with Intention.

What is H2Om?
H2Om is a natural spring water, no flavors or additives, bottled in a BPA-free PET1 bottle which is 100% recyclable. The positive themed labels are designed be used as a means to direct your focus towards creating intention. They serve as a reminder to activate your attention and create positive energy throughout your day.
H2Om’s commitment to you and the planet. First and foremost, H2Om has sourced the cleanest, most pure, high mountain spring water. (see my description above) The water emanates from a 4000 ft elevation and is naturally filtered through a granadorite rock formation. It is then brought down the mountain in a stainless steel transport vehicle, and ecologically filtered by UV light, sub micron filtration and then ozonated with Oxygen 3, the most healthy and natural way to clean water.

But wait… what about the plastic bottles? H2om’s BPA-free plastic bottle resin molds are manufactured in an eco-friendly hydro powered plant in Costa Rica, and the bottles are made locally in the US at their Los Angeles bottling plant. H2Om bottles contain no harmful chemicals that could leach into the water and are guaranteed to be Bisphenol-A and Phlalate free. The bottles are 100% recyclable, including the polypropolene labels. H2Om, in collaboration with it’s bottle manufacturer, is now testing the stability of an exciting new organic mineral that will be added to the plastic resin to break it down into nothing but water and oxygen after six months in the outdoor sunlight (coming soon). This will mean, whether in the ocean or landfill, the bottle will not contaminate or harm the environment. H2Om’s mission for sustainability is also represented by route managed deliveries, using tree free and 100% recycled papers and products, and having virtual offices, which are more energy efficient.

What about carbon emissions? In early 2007 H2Om became partners with and was featured as one of their top 20 companies creating positive change on the planet while offsetting their entire carbon footprint. For more information on retail outlets or to order online visit

I am sort of a bottled water snob, but I do have this to say is, “I think this is a great product. The water tastes clean and pure. I actually followed the instructions and found some benefit to it. I also think it’s cool that the power of my purchase created some good on the planet, besides the good it did for me. Too bad there are not more companies following H2Om’s lead to educate, get people involved and be a part of creating something positive on the planet”

Try it out next time you’re in Whole Foods or your favorite health food market.


December 25, 2008 8:37 PM

sounds like a run of the mill sort of advice regarding asset allocation for each stageof of life. I recommend you read Kotlikoff's Spend 'Til the end book. He has a much better way of deciding how the asset allocation should be done. The optimal equities/bond allocation glide path may not be a straight-line as implicated here.


May 2, 2009 3:31 AM

Hey I thought this article had some good info along the lines that you were looking for

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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