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Are You Invested Like an Old Person?

Stu’s recent study on equity allocations in retirement accounts among young adults indicates that this demographic may be investing inappropriately for their age and thus making poor financial decisions that will have a large impact on their future.

Preliminary results show that only approx. 42% of young adults (person under the age of 35) even have a retirement account; the other 58% do not.  Of those who do have retirement accounts, the average equity allocation (equity = stocks, debt = bonds) is 55%, and only one third (approx. 37%) indicated they are comfortable making investment decisions.

Decisions made in young adulthood have substantial impact on retirement due to compounding interest.  And Stu’s results, along with other studies and statistics we won’t get too far into, are saying that on average, people under age 35 are invested more conservatively than what we would recommend for most 60-year-olds.

So the question is, are you invested too conservatively for your age?

Let’s look at the power of compounding interest.  Imagine you are 30 years old, making $30,000/year and saving 10% of that to an IRA.

If   you were invested in…With   an average return* of…At   age…You   would have…
100% stocks (equity)11.53%60$1,159,754.00

*Average taken from US equities from 1928-2017

If   you were invested in…With   an average return* of…At   age…You   would have…
50% stocks/50% bonds5.15%60$557,725.00

*Average taken from 10-year US Treasury Bond from 1928-2017

That’s a difference of over $600,000.00 – a difference that could make or break your retirement goals.

Although your personal risk tolerance, that is, how comfortable you are taking risk and investing in more stocks, does need to be considered, the benefit of compounding interest when retirement is still 30+ years out is too large to ignore. Take the time to evaluate your retirement account investments and confirm your dollars are working for you.

Check out Stu's original research here.