The passage of time feels like it creeps, then pounces: Suddenly, party conversation focuses on real estate, how we’re going to bed earlier and our realization that we have no idea what type of jeans to wear. For years, millennials have been the butt of financial jokes: “They spend all their money on lattes and avocado toast!” and “Why don’t they get a minimum wage job to pay for college like I did?” But the clichés got old quickly.
And now, as millennials move deeper into their 30s and 40s, there are some things to consider changing up. Most notably, our investments.
YOUR PORTFOLIO MIGHT NEED TO CHILL
For those lucky enough to invest early on, the advice was pretty standard: Invest often, and invest in aggressive assets to take advantage of long-term growth. The target-date funds (those that automatically rebalance your portfolio as you get older) held in 401(k)s were typically calibrated to higher-risk investments. Maybe the most aggressive of us dipped our toes in crypto and meme stocks at some point. After all, you’ve got all the time in the world to ride out the highs and lows of the market when you’re 24.
But now, we’re more mature. And with that wisdom comes new responsibilities, like adjusting our asset allocation. Asset allocation is just a fancy phrase for what percentage of your portfolio is in each investment. For example, a 20-year-old’s investment portfolio of $100 (for easy math), might be 90% in stocks and 10% in bonds, or $90 and $10, respectively. As you get closer to retirement, it’s a good rule of thumb to shift that allocation to a less risky position, such as 60% stocks and 40% bonds, though the exact percentages will depend on your personal financial situation.
“In general, as we get older we tend to take fewer risks,” says Aaron Hatch, a certified financial planner and founder of Woven Capital in Redding, California. “In your early 20s, when you have nothing to lose and time on your side, you can afford to take all kinds of risks. However, as we millennials accumulate assets in our 401(k)s and elsewhere, and we inch toward retirement, it might be worth considering taking a little risk off the table by slightly decreasing exposure to stocks or other risky investments.”
SHIFTING STRATEGIES
One easy way to figure out if it’s time to shift your asset allocation is to look at model portfolios. Some brokerages will show examples of what their target-date funds look like for different timelines to retirement. You can consider these illustrations and adjust yours accordingly.
For example, if you’re 30 and you’re planning to retire when you are 65, you could check out portfolios that show what a target-date fund looks like for those retiring in 2060. You may see a majority of stock-based funds with about 10% in bonds. If you’re in your 40s, that recommended portfolio may be closer to 15% in bonds.
Model portfolios can be helpful, but they aren’t perfect. Maybe you own a chunk of crypto or some real estate. These kinds of investments should be considered when shifting your assets, and it can help to get a second opinion. Some financial advisors will meet with you as needed to give your portfolio a checkup.
“When developing a tax-efficient withdrawal strategy and systematic withdrawals from your accounts, this is truly where working with a financial planner can save you thousands,” says Marigny deMauriac, a CFP and founder of deMAURIAC, a financial planning firm in New Orleans. “We understand the tax implications of withdrawals and can help you coordinate withdrawals with Social Security benefits and other sources of income to optimize your retirement.”
WHAT HAPPENS NOW MATTERS IN RETIREMENT
When you’re shifting your asset allocation now, it pays to think strategically about your future.
“The types of accounts an individual has when they retire, along with their cash needs, should determine their withdrawal strategy in retirement. Because 401(k)s and Rollover IRA withdrawals are taxed as income, it is important to keep taxes in mind when deciding from which account types to pull money for living expenses in retirement,” Hatch says.
Think ahead to retirement. When you sell your investments so you can have spending money in retirement, you’ll likely have to pay capital gains tax on those earnings— unless you invested within a Roth 401(k) or IRA account and the taxes were already paid. But if you know you’ll need to pay taxes on that money, it’s worth calculating what you’ll owe and setting it aside.
And according to deMauriac, you may still need to be invested throughout retirement.
“Since you might live to be in your 90s, chances are, you can’t just shift everything to cash and call it a day,” deMauriac says. “Most people need to plan for growth in their accounts to outpace inflation, even in retirement.”
Asset allocation, like many of the chores of millennial middle age, may not feel glamorous, but it may help us pay for all that avocado toast we’ll enjoy in retirement.
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This column was provided to The Associated Press by the personal finance website NerdWallet.The content is for educational and informational purposes and does not constitute investment advice. Alana Benson is a writer at NerdWallet. Email: abenson@nerdwallet.com. X (formerly known as Twitter): @alananeedsanap.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
