Instead of following the herd, the independent, self-directed investor relies on good research and due diligence before taking a position. However, as you age, the goals of those accumulated assets change. That means readjusting your savings allocation to meet the changes that come with graying.
Invest in your 20’s
Growth and abundance.
That’s what you’re looking for. Substantial growth (and if possible tax protected). When you’re just starting your career, you have years of earnings to look forward to so you can afford to take on an occasional traveler. You can afford to take more risks for greater rewards because if the increased risk costs you, you still have time to recover.
Of course, individual investment preferences also come into play here. Risk-averse investors should stick to their instincts and invest conservatively, regardless of age. However, at this stage of your investing career you may be more aggressive than when you were in your 70s.
Invest in the Middle Ages
There’s a mortgage, a tuition, an expanding family, and a shrinking bedroom. The real world presents a number of challenges for the middle-aged investor.
In general, a well-diversified collection of assets will serve most self-directed investors. Think of your asset basket as a pyramid made up of three levels. The bottom tier, also the largest, contains buy-and-hold conservative assets: balanced mutual funds, bonds, and other quality “widows and orphans” investments.
The middle tier contains investments with a little more risk but the potential for higher rewards. Quality mid-cap growth stocks, sector funds, and other “juicing” investments that, over the long term, will provide the long-term “oomph” in your portfolio.
The top level, the apex, is also the smallest portion of your total allocation. A small portion of your assets can be placed in higher-yielding stocks, but also in stocks that put investment dollars at greater risk. It’s not a requirement, of course, but it’s certainly an option for more aggressive investors looking at a 15- to 20-year time horizon before diving into savings. Microcaps, hedge funds, currency trading, and other high-risk, high-return investments can all be part of a well-considered asset allocation.
Invest in those golden years
The older you get, the shorter your time horizon when it comes to investing. You may be thinking of retiring in a few years or already living your dreams of throwing out the alarm clock and who cares if there’s a traffic jam? You have 18 holes scheduled for 10:00.
Here, the general rule is simple: preservation of capital. Don’t lose anything you have. Therefore, the allocation of the pyramid changes with more assets in the lower level, the most conservative, to preserve assets.
However, some of those assets still need to be allocated to the second level of the pyramid. These investments tend to be growth companies and growth-oriented mutual funds, and growth should be a part of any portfolio to offset the effects of inflation on your portfolio’s purchasing power.
We all anticipate a long, happy, and secure financial future, so that the accumulation of assets you’ve worked so hard to build will have to pay off over 20, even 30 years. (knock on wood). And a well-balanced, self-managed portfolio based on sound economic principles and proven strategies is the best way to ensure those golden years stay that way.
So today’s lessons? Don’t listen to the pundits in the media and adjust your portfolio as you age, putting a higher percentage of total assets into safer investments to preserve your hard-earned holdings for a very long lifespan.
