Risk-Averse Young Investors

On 02/18/2011, in Uncategorized, by Jordan Wilson

Just watched an excellent little video.

Excellent for two reasons.

One, it agreed with some of my recent comments on asset allocations.

Two, I have better hair than the Bank of America representative. A rare feat these days.

The commentary is that younger investors, those in the accumulation phase, are actually more conservative than older investors. The video argues that this is a strategic error and that younger investors should increase their portfolio risk to attain better long-term returns.

A valid point. One that I have made previously in discussions on life cycle phases.

I agree that debt repayment should be a priority. Interest on most non-investment related debt is non-deductible for tax purposes. So the interest expense is even more onerous.

I also agree that investors should maintain emergency cash reserves.

My only quibble with the video is that equities are not necessary for every young investor. Logically, and based on historic data, younger investors should invest in common shares. But if you are extremely risk adverse, do not feel pressured to acquire shares. You may not get the best possible portfolio returns, but you will be able to sleep at night.

Most corporate savings or investment programs are beneficial for employees. But before committing, review your company’s plan and make sure that it is a good thing for you.

Remember that everyone is different. While the video comments make sense in general terms, you need to evaluate in terms of your own investor profile.

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