|CONRAD DE AENLLE|
Young people are almost always encouraged to load up on stocks in their retirement portfolios. The prospect of returns higher than bonds over the long run in exchange for greater short-term price swings is considered a deal too good to pass up for someone with money that will remain untouched for many years.
Some financial advisers have begun to question that conventional wisdom. They wonder how benign the volatility is at a time when job security is low, especially for the young, and whether retirement assets really are out of reach to them.
''The thesis that young people have 40 years until they retire and so they should invest mostly in stocks makes intuitive sense, but it's wrongheaded,'' he said in an interview. ''There are lots of reasons not to go down that path.''
Yet that is the path that managers of target-date funds set out on. These funds, often the default option in 401(k) plans, hold a blend of stocks and bonds in which the proportion gradually shifts over a career from almost 100 percent stocks to almost 100 percent bonds.
Once they reach their years of peak earnings and more job security, he said, they can increase their exposure to stocks and stay heavily invested in them until well into their 50s. Many advisers suggest that investors throttle back into bonds as retirement looms, but he contends that longer life spans almost require capturing the higher returns usually available from stocks for longer.
Financial advisers find merit in
But he wouldn't eliminate retirement contributions or saving for other worthy goals while building up the emergency fund. It would be a wasted opportunity, he said, not to pay into a workplace account up to the level that attracts employer matching contributions.
''Don't go all or nothing, especially if the employer is matching,''
While that should be a priority, he would limit retirement contributions in order to pay down credit card balances or other debt that carries high interest rates. Echoing
Attitudes toward risk and investing in general can be formed early, another reason
''Experiences in our 20s shape our attitudes for life,'' he said. Young investors today ''are much more risk-averse than baby boomers because their early investment experiences are very disappointing. That leaves them with lifelong risk aversion.''
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|Source:||New York Times Digital|