Personal Investor: when investment turns into wealth management
Whether you want to admit it or not, we all get older. Things that we once thought were funny can seem a little risky now. After all, in most cases the years have given us more to lose.
This changing worldview also applies to investing. We can take risks, and if they fail, there is a lot of time to recover. If risky investments go well, there is more to make worse over the years.
Eventually, wealth accumulation turns into wealth preservation and over time the asset mix in your portfolio should reflect this.
The most obvious shift from investing to managing risk is reflected in the way assets are allocated between stocks and fixed income. Stocks tend to generate high returns with the most risk, which makes them good for investors with long-term horizons. Most good quality bonds and other fixed income products are relatively safe, but offer little return in these days of low interest rates. This level of security is useful for investors who are retired or near retirement, when the time to withdraw funds is approaching.
The exact allocation between stocks and fixed income will depend on the individual’s circumstances, but CIBC provides a typical asset allocation to make this point.
- Still a little carefree in your 30s: 70% stocks, 20% bonds
- Maturing in your 40s: 60% stocks, 25% bonds
- Looking towards retirement in your 50s: 55% stocks, 30% bonds
Adjusting your portfolio for your age is something best discussed with a financial advisor. While preservation takes priority over accumulation over time, the portfolio must still grow to meet retirement goals. It is possible to be too sure.