Strategy: Build a portfolio based on your age
Historically bonds have always been represented in different investment portfolios along side stocks. However, not all investors have the same horizon. That’s why, as an indication, it is said: your age must be the % of bonds in your portfolio!’
- Goal of Strategy:
- Difficulty level:
- Activity of Strategy:
- Time Horizon:
Buy and hold
With this strategy, you allow your investment horizon to help you determine the allocation of assets. Some people want to have their age as the percentage of fixed income in their portfolio. So younger people only have a relatively small part invested in bonds. Normally, other investments like shares, ETFs, and derivatives have a higher risk profile. If someone starts to build up a portfolio for pension purposes with a horizon of 30+ years, negative results can be compensated in the future. Statistically, the chance to achieve the average results of the benchmark is higher.
With a shorter (investment)horizon the impact of bad results with more volatile investments could be (too) big. A bad year therefore is more likely to determine the overall result if the timeframe is reduced. That’s why fixed income in this strategy should be higher for older people. The exact numbers for each investor can vary. Nowadays the return on fixed income is historically low.
We are not insisting you buy extra bonds always on your birthday! But it does make sense to use this investment strategy as a guideline to build up your portfolio.
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