The Young and the Riskless

December 6, 2011 - Al
If you’re in your 20s or 30s, a couple decades from now you may well be reading articles similar to this one in the New York Times about the risks of experiencing poor or subpar investment returns in your late career years. Ideally, when you come across a quote like this one from William Bernstein, you’d smile with satisfaction:
“What the wise person does is save a large amount of money when they are young…And if they can do that, when they are older, they can cut back on their equity allocation. When you’ve won the game, you stop playing the game.”
This implies that you not only will have saved, but that you’ll have “invested” those savings in assets like stocks and bonds that have real growth potential.
But if you’re like many young people, taking such “risk” may be unsettling. The Wall Street Journal recently reported from surveys and interviews with financial advisors that many Gen X and Y investors are “...shying away from equities and are more concerned about protecting their principal than growing their money.”
Why? The two major stock market downturns since 2000, seeing their parents’ retirement accounts experience losses, and an uncertain economy are key factors.
If this discomfort with risk applies to you, try to mentally as well as physically segment your money between what you may need in the next few years — emergencies, a new car or house — and what will help you be financially independent late in life — your retirement money. For the latter, consider a diversified balanced fund that invests in a mix of different types of stocks and bonds; its lower volatility compared to separate individual stock and bond funds may help you stay the course. AC: 0811-5004

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