STOCK INVESTING AND YOUR AGE
Is it alright to have all your savings in the stock market? What percentage of their money should people have invested in stocks?
Before you start buying stocks for the first time, you need to have a good gameplan. Those questions are generally answered by saying that three things matter most to determine what percentage of your savings you should have invested in stocks at any one time:
1) Your age
2) How soon you will need your money
3) Your risk tolerance
Your age is generally considered one of the biggest factors that should help you decide how much of your money to invest in the stock market. The reason for this is that your age is a factor in how soon you will need that money.
A young person in their 20’s or 30’s might be able to get away with putting most or all of the money they don’t need in stocks. The reason is that if the market goes down and they have substantial losses, they still have ample time before retirement age to build it back up. Over a 20 to 40 year time span, the odds are very high the market will go up. So if you are young, you can take the chance and have all or much of your money in stocks
The older you get however, the sooner you will need the money for retirement. This has been shown time and time again in the last several years as many older people lost half of their life’s saving in the market and now have to continue working. Once you reach retirement age, it is a good idea to have most of your money out of stocks and into something safer.
If more retired people would have followed the age rule in stocks and not had all their retirement savings and 401k savings in stocks, they would not be in the crisis situation they now find themselves in.
Number 2 on the list is similar to #1 in that it has to do with how soon you need the money. If you are saving for a house you want to buy in a couple years, you should not have that money in stocks. Any money you know you will need sooner than 5 to 10 years should NOT be in the stock market. Stocks are not guaranteed and you have to understand that all stock market investments may go down and down substantially.
The final factor which should determine what percentage of your money you should invest in stocks is your risk tolerance. If you are a person that is a worrier and is uncomfortable with risk, you should never have a high proportion of your money in stocks. Everyone has a different risk tolerance and if it is something you have trouble dealing with, then you should have more of your investment money in safer places such as bank CD’s and Treasury bills.
