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Mathew Ingram

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The age equation

Mathew Ingram


TORONTO (GlobeinvestorGOLD) — So you’re in your 40s now — heck, maybe you’re even pushing 50. Has your investment strategy kept up with your advancing years? Putting together a portfolio that makes sense isn’t necessarily a cut-and-dried issue of age, with specific investments for certain periods, but it does make sense to revisit your goals as you get older to make sure they fit.

The standard rule of thumb for investing is that you should take on less risk as you age — in other words, you should be the most risk-oriented when you are in your 20s, then ease off on the riskier stuff as you get to 40s and then move even further into the conservative, income-based investments as you get closer to your retirement. Some advisors argue that you should have 1 per cent of your portfolio in bonds for every year of your age, and the rest in stocks: 20 per cent at 20, 40 per cent at 40, etc.

Not everyone buys that, however. John McMurtry, a financial advisor with Assante Financial Management Ltd., says he believes basing all your investments on that kind of hard-and-fast rule “is a crock.” He says he has some clients who are in their 30s and are more conservative in their investment approach than other clients in their 50s, and vice versa.

As with most kinds of investing, Mr. McMurtry says, it depends on when you are likely to need the money that is in your portfolio. If you are a 25-year-old who plans to tour the world and live life as it comes, then you can probably afford to take risks with your investments and make up for any errors later on.

If you are in your late 20s and are thinking about settling down with someone soon, however, that approach isn’t going to hold true at all. According to Mr. McMurtry, that’s when you should probably focus on being more conservative with your investments, so that you can build a good foundation and save for a house or other spending you might want to do.

By contrast, if you are in your mid-40s and are making a good income with a stable job and you have one or even no children, then you can probably afford to get a little more risky with your investing. The good part, he says, is that even if things go bad, you still have plenty of time to make up for it before you are really going to need the money.

That doesn’t mean loading up on technology stocks or dumping 20 per cent of your money into an Asian fund, however. Mr. McMurtry says you should still go for a balanced strategy of income and growth — but maybe give yourself a bit more exposure to something with a little risk to it. In most cases, he says, that means picking a fund in which the manager has the leeway to overweight or underweight a sector if he or she thinks it is could produce stronger growth, such as commodities.

“I’d probably suggest an aggressive balanced fund with a globally diversified portfolio,” Mr. McMurtry says. And when it comes to proportion of bonds versus stocks, “I’d say anywhere from 80-per-cent equity and 20-per-cent income all the way down to 70-per-cent equity and 30-per-cent income.” Some investors might want some exposure to real estate, because it is a good diversifier. “It’s a little like equity and a little like bonds, and it doesn’t really correlate with either so it’s a good way of being diversified,” he says.

Some investors in their 40s might not be open to as much risk, he says, but for the most part when you’re at that stage of life you are “in the core of your accumulation phase, so you have a fairly long investment time line, and can afford to be a little more aggressive.” Besides, there’ll be plenty of time to get more conservative when you’re 60, right?

Mathew Ingram joined The Globe and Mail's online news team in June of 2000, after spending four years as the Western business columnist, based in Calgary.

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