What’s Age Got to Do with It?

We agree when it comes to things like working, driving, marrying, taking social security, your age is very important.  Age factors into the yes or no equation.

But investing?  What does age have to do with it?

Why should a 35 year old hold passively to watch half her savings evaporate in a shredding bear market?  Why should a 65 year old idly sit by while the stock market soars 50%?

In either case, your age has nothing to do with the market’s actions, returns, or potentials.  The most important things like market trends and valuations don’t ever figure into their age-based or life-path investment funds.  Everyone knows, however, there are times to be invested and times to be out of the market.  If a company is worth X amount and it is trading at ½ of X, then that tells you something.  If a company is trading at 5 X, then that too tells you something.  Instead, they say, buy this because you are young or buy something opposite that because you are old.

Now, we understand that time does play a factor in the equation, but not like one might infer from the old way of thinking.  The traditional way of thinking was this:  The longer one has to invest, which is to say, the younger you are, the more risk of loss you can take.  The assumption is you can make up for it later.  How?  By being more conservative when you’re older!  How can it be good for you when you’re old to avoid losses, but not to do so when you’re young?  How can participating for gains be good when you’re young, but not when you’re old?

Instead, the factor of time works like this for younger and older investors:  The younger you are the longer you have to compound your gains.  Losses thus work more powerfully against you when you’re younger at precisely the time when compounding gains matter most.  The older you are the less time you have to recover from losses, but it also means the more important it is to capture gains in bull markets when stocks are advancing.  In these cases, the same principles are at work regardless of age.

So, age should have nothing to do with your investment strategy.  Instead regardless of your age, you should be guided by the time-tested goal of making money and not losing it.

Stephen L. McKee
PS It is never too early or too late to take control of your investments. The new year is almost here, let us help you be proactive in your investment decisions in 2016!