Younger investors, on average, will take on more investment risk because they have more time to recover if the market falls. However, according to our research, at least a fifth of millennial Vanguard investors have taken a conservative approach to their portfolios. Our average boomer investor retains a 66 percent equity allocation, despite the fact that those closer to retirement should usually be playing it safe with their investment choices. Households from the silent generation aren’t far behind, with 62 percent invested in stocks. That’s not what we expected from those age groups, given that many investing experts advise lowering equity exposure as one gets older.
RISKS FOR OLDER GENERATIONS
Both yes and no. In general, older investors may want to shift their retirement funds away from riskier assets such as stocks and toward safer alternatives such as bonds and money market funds. To be profitable, however, you don’t need a fully risk-free portfolio (there isn’t one!). It’s important to remember that lower-risk investments are more susceptible to inflation risk, which is the risk that rising rates will reduce the value of your investment returns. So, rather than eliminating risk entirely, it’s all about making the right changes as you get closer to your objectives.
WHO SHOULD AVOID STOCKS?
Low-risk investments are preferred by young households for a number of reasons. Some people are concerned about market volatility, which is understandable. However, while the stock market can be unpredictable, avoiding it can be much riskier in the long run because it does not help counter inflation or provide growth opportunities. If you’re a younger investor with a long-term target and a lot of cash, you might want to look into some aggressive stock funds to help you grow your money. If you have a longer investment horizon, a target-date fund might be a good option.
WHAT IF YOU GET HELP FROM EXPERTS?
Over the age of 50, advised investors retain fewer stocks than self-directed investors, implying a much more cautious approach to risk management. However, as most advised clients select retirement as their primary investment target, the impact of advice on investment choices isn’t surprising. If you’re unsure about investing or are too busy to do so, there are resources available to make you feel more optimistic about achieving your objectives.
According to a Chinese proverb: “The best time to plant a tree was 20 years ago. The second-best time is now.”
Investing is all about having the mindset. The best time to start investing, no matter how old you are, was a long time ago. But it’s never too late to make a difference.
Simply ensure that the choices you make are appropriate for your age—your investment strategy can develop with you. Meeting with a trained financial advisor who can tell you where you are and where you need to go is also a good idea.
