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Young or Old? A 2009 Asset Allocation Game Plan

Posted by: Lauren Young on December 29, 2008

Whether you are young or old, you need an asset allocation game plan for 2009. Here’s the next installment of age-based investment tips for 2009 from Bob Mecca, an independent and fee-only certified financial planner in Mt. Prospect and Hoffman Estates, Ill.

Ages 25 to 35
This group tends to switch jobs frequently. First, maximize 401(k) contributions. Concentrate on growth. Next, whenever a job is terminated, roll your 401(k) assets to a self directed IRA. Do not cash in to avoid costly income tax and penalties.

Set up a college 529 plan for the children. Invest as little or maximum as you can but do so on a disciplined basis.

Watch living expenses. Keep a budget. This bracket tends to spend more money on “wants” versus “needs” which can find them with significant credit cards.

If you have big credit card balances, make a 2009 resolution to pay off quickly. Cut back on living costs and pay down the credit debt starting with the highest costing rate. Check into zero percent credit cards. Open a Home Equity Line of Credit.

Review life insurance and concentrate on term which is the least expensive. Make certain all debt and unfunded college liabilities are covered at minimum.

Asset allocation:

5% cash
15% income
70% growth
10% sector plays and commodities

Ages 55 to 75

This bracket should not be taking unnecessary risks. As you get older, move into an asset protection mode rather than asset accumulation mode. That said, it is improper to just put your head in the sand and invest all to super-safe Treasury bonds. The yields on them are low. As inflation picks up, it is doubtful the income can keep up with inflation costs.

For this bracket, consider an asset allocation of

25% liquid
30% income
45% growth

Use the liquid assets for emergencies and possible resource for upcoming capital expenditures. Also obtain a home equity line of credit. Prime is 4% which is low.

The income assets should be in a combination a)ladder of CDs, b)high-quality bond mutual funds, c) individual preferred stock and d) individual high-quality corporate bonds

Growth should be in a combination individual stocks, mutual funds, and ETFs. The funds should be balanced between large and mid cap. International funds also are helpful.

Having perhaps 5% in commodities should be considered.

Think seriously about obtaining a personalized long term care insurance policy. Form the benefits around your budget.

If the estate is large, gifting makes sense. You can gift up to $13k.

And helping the grandchildren with college would be nice. Open a 529 college investment program. You retain control but excluded from your estate.

Have $3 million minimum umbrella policy.

Reader Comments


December 30, 2008 8:04 PM

I always wondered why anybody would recommend growth stocks, like you have for the 25-35 age group. What are the benefits? According to Jeremy Siegel, $1,000 invested in the lowest P/E stocks of the S&P 500 would in 2006 be worth $697,000. That same $1,000 invested in the highest P/E stocks of the S&P 500 would in 2006 be worth $65,000. Big difference, and keep in mind that dividends are still taxed at a low rate.


December 31, 2008 5:24 PM

OOOps! Should have proof read before submitting. That is $1,000 invested in 1957.

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