Why Investing Goals Should Change over Time

What is your goal in investing in stocks?

The answer won’t be same for every investor and it will change for each investor at different times.

The important consideration is that you be clear in your own mind what your goal is at this point in your life – because that goal directs the type of investments you make and your expectations of that investment.

Younger investors are more prone to focus on growth and willing to take risks to build a portfolio. As middle age approaches, it makes sense to back off the risky, high-growth potential investments for stocks that offer growth that is more predictable, if somewhat slower,.

Nestegg

With retirement near, investors begin to stress preservation of capital and are less concerned with growth. Many investors lower the percentage of stocks in their portfolio and raise the percentage of bonds and fixed income (cash) investments.

How do you know what the proper mix of investments is for your situation?

That’s a difficult question to answer with a blanket statement because individual circumstances are so different. However, here is a starting point: the percentage of your portfolio in bonds or fixed income investments should equal your age.

Bonds

For example, a 45 year-old investor would have 45% invested in bonds and fixed income investments and 55% invested in stocks. A 65 year-old investor would have 35% in stocks and 65% in bonds and fixed income investments.

This is just a starting point. You need to factor in your tolerance for risk to make any adjustments. For example, I think this formula is too conservative for younger investors.

The more stocks and fewer bonds in your portfolio, the more aggressive it could be considered, while the opposite composition may be considered conservative.

There isn’t a “right or wrong” answer to this question as long as you understand the implications of your decision. A very conservative approach for young investors may make it difficult to reach your goals (notice the qualifier “may”).

A very aggressive approach for older investors may put their nest egg at risk if the market turns against their stocks.

Conclusion

Which approach you take and feel comfortable with is the right one for you as long as you understand the implications of your decision.