I hate to break it to you, but we are all going to get older. And part of this process involves managing your assets and finances through the various stages of life. I personally see 3 different stages of asset management and wealth building.
I will outline the way I see the stages, but remember these are general age brackets and guidelines. Everyone’s situation is a little different. Each persons precise goals are different. Everyone has a different tolerance for market risk a comfort level for where their money goes. Therefore, there is no need to have some big debate about if this is perfect or not, it is not. These are general guides and I will explain some of the rationale.
Age of course is just a number. We are as old as we feel. This is a big reason we emphasize health. True Wealth is more about how we feel, not simply an age for investment management purposes.
One thing I have learned from reading the work of the great investor Ray Dalio, is that investing and life is a lot about managing risk and reward. We are constantly managing risk in our daily existence whether we are aware of this or not.
Our finances and investments are no different. I do know one thing, a persons tolerance or ignorance of risk changes as a person ages. At 20, you may be much more willing to take risks than you would be at 60. Why do you think the world sends 20 year olds off to battle? And the reason is quite simple, at 60 there is much less time to bounce back from a miscalculation. The 20 year old can probably re write the entire book again. Here are 3 basic stages of wealth building and asset management:
1. 20-40 years old
In my view these are the initial acquisition and establishment years. These are the years first finishing education and training. Next building a career and carving out a niche. Then, once money starts coming in, it is time to buy and acquire some initial assets.
These include 401k contributions, dividend stocks, real estate investment trusts, real estate, bonds, etc. Typically during these years a person will be plowing as much cash as possible into stock index funds. These can have major dips, but historically over time the dips have recovered and made long term investors money. People this age typically have time to ride out the market.
In fact, during this age one would hope for a huge market crash. This way they can buy assets at deep discount. But there is no way to predict this, just dollar cost average over the years.
2. 40-60 years old
In my mind, an investor is still heavy into stock index funds at this stage, with some other asset classes for broader exposure. An investor may want to consider some bonds for less volatility. Perhaps some bonds, some real estate, some other dividend stocks, etc.
This is the time to harness the true power of the Investing Trifecta to Triple Net Worth In Ten Years! These can be the golden compounding years when that initial amount invested from the previous 20 years can really start to take off.
3. 60 and beyond
There is a good chance that you could live many years after 60. With advancements in medical technology and medicine people are living longer. Therefore someone could have another 20-40 years of investing life beyond 60.
As a result, a person may want to still be in stock index funds to harness the power of those dividends and growth. But at the same time, a person may not be able to stomach a gut wrenching drop in value like the one seen during The Great Recession. At that time everyone saw their assets sliced in half.
Asset Allocation Viking Cartoon
I drew our “Money Viking Dude” in his various stages of life. When he is a young man from 20-40 is when he is trying to establish himself in some kind of profession (longboat construction and farming), make money and then begin accumulating assets. Remember, the first $100k is the hardest. But after that, many people have established the habits required for financial and health success!
From 40-60 Money Viking dude wants to maximize the power of compounding and manage many demands on his resources. Raising a family, paying down any debts, etc.
From 60 on Money Viking dude has been to battle and back again. He is ready for some more financial freedom and the ability to give back to his Viking clan.