Sensible Investment Strategies: Age and Life Cycle
We all have our own personal investing strategy. One's investing strategy is usually reflection of their comfort level with the market and a reflection on their experience level. Professional investors may feel more comfortable trading different naked put and call options than those first entering the market. On the flip side, many basic investors like to fall back and rely on the "buy and hold" strategy. Experience aside, the question here is should age hold any bearing on investment strategy?
A while back, I got the wonderful opportunity to talk live on the air with the hosts of the E*Trade Radio station about this very issue. After a very detailed and interesting talk about the life cycle of investing, we all agreed that age should play a roll in one's investment strategy inorder to attain higher total returns early in life and conserve your accumulated assets late in life. Before I go any further, I want to also point out that we all also agreed that no matter what the age, making wise investment decisions was far more important. The key idea here is that age-based portfolios adjust the relative risk of the investments to the beneficiary’s time horizon, giving the investor a better idea of how to adjust his positions based on his or her current position in life.
Early-life (before the age of 35) » It is recommended taking a more firm position in speculative stocks (those of higher risk) because you have the rest of your life to make up those loses should that happen to you. Speculation in the market, despite being risky, can also give you the opportunity to attain above-average return rates.
Early-midlife (36-55) » It is recommended positioning your portfolio to take a more growth orientated position while still having a good speculative portion. This will still allow you to pursue speculative growth opportunities while helping to build a solid portfolio base.
Late-midlife (56-65) » It is recommended positioning your portfolio away from speculative opportunities and more towards growth and income opportunities. Now that you have a solid nest egg in place, you want to protect this at grow it at a conservative rate that will minimize your risk.
Retirement (65+) » It is recommended now to position your portfolio in income driven opportunities. Positions that were guarantee your money and accumulate interest for you to live off.
These guidelines serve as a good general reference that will very greatly from investor to investor based on style and experience level. Experience and style aside, I believe this basic outline is a good way to better help ensure the protection of your assets while hopefully maximizing your returns.