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


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.


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