The myth
From the small things like your taste in food and clothes, to the big ones like how you want to spend the rest of your life, things tend to change as you age.
Even the way you handle money now may not be the same as how you’ll approach it in 10 or 20 years. That’s why many suggest that it’s crucial to adjust your investing strategy as you grow older.
The reality
Your approach to investing may evolve as you age because of several factors like your knowledge level, the amount of risk you can take, your financial situation, and your priorities and goals.
Here’s what may happen as you go through different stages in your financial journey:
- You’ll learn as you go
Before you start investing, it’s ideal to properly prepare and educate yourself. In reality, however, many people learn through their own experiences and mistakes.
As you go through the ups and downs, you’ll likely pick up a thing or 2 that you may want to incorporate in your strategy.
Let’s say you bought stocks early on in your journey because it was a popular option. Eventually, you learned that stocks tend to come with higher risks, and it’s important to diversify to manage those risks.
Instead of having an investment portfolio with purely stocks in it, you decided to look into other investments that offer more safety and stability, like fixed-income products such as bonds.
Investing wisdom may come with age as you gain more experiences and learn new things. When you know better, you may end up becoming more methodical and rational with your investing decisions.
- Your risk tolerance can change
When you're in your 20s or 30s, you have many years before retirement. You can take more risks with your investments, like putting money in volatile assets whose prices may go up and down a lot.
If the market drops, you still have time to wait for possible recovery. When you hit your 40s or 50s, you're closer to needing that money and relying solely on your savings and investments.
A big loss could be harder to bounce back from, so people tend to prefer moving more money to “safer” investments like bonds or time deposits at this point.
Your attitude towards risk is shaped by many factors. Some people may be comfortable with risk even as they grow older, while others may be cautious from the start.
It's ideal to check periodically whether your risk profile has changed so you can make adjustments if needed.
- Your priorities and goals may shift
When you started investing, maybe in your early or mid-20s, you may have done so out of curiosity or simply because other people told you it’s important to invest.
Later on, you might gain a deeper understanding of how investing can help with your goals, like giving additional income sources or helping you grow money for a big purchase.
Your goals can further evolve as your circumstances change. If you start a family, you’re likely no longer investing for just yourself, but also for the benefit of your loved ones.
You may need to adjust your investing choices to better address your new priorities and needs.
Unexpected events can also affect your financial situation and attitude towards risk. For example, a significant medical emergency can deplete your savings, and you may grow more protective of your money as a result.
Remember that not everyone is on the same path, and your personal situation matters a lot when deciding whether to change your strategy.
Verdict: Mostly true.
Your age can have a huge effect on your risk tolerance and how you handle money. However, the decision to adjust your investing strategy shouldn't be made based on age alone.
You should also consider how your goals, circumstances, and needs have changed with time.
