Young investors: Time is on your side

Today's young investors weren't alive when The Rolling Stones, among others, released versions of Time is on my side yet the song's title just about sums up their lengthy investment horizon.

 

Young investors truly have time on their side.

By starting to invest as early as possible with enough exposure to growth assets, young investors typically have plenty of time to ride through numerous investment cycles, cope with share market volatility and enjoy long-term compounding returns.

And young investors have much more time to recover from investment setbacks. They have pre-retirement investment horizons of up to 40-plus years and then many years of investing once eventually retired.

Young investors should have target asset allocations for their portfolios – the proportions of assets in different asset classes of mainly shares, property, fixed interest and cash – that reflect their usually higher tolerance to risk.

Unfortunately, many young investors may invest too conservatively for their own good.

The ASX Australian Investor Study 2017, carried out by Deloitte Access Economics, comments on a “disconnect between investor risk profiles and their return expectations”. (The study focuses on investors who have at least some investments outside the big APRA-regulated super funds.)

Researchers found that young investors generally appear more risk averse than older investors, contrary to “conventional expectations” and challenging investor stereotypes. For instance, a very high percentage of investors under 35 were seeking guaranteed or stable investment returns.

The study comments that the risk aversion of young investors may be related to their growing up in the time of the global financial crisis (GFC). Their greater unwillingness to take risks might be linked to their inexperience as investors and level of their financial knowledge.

As the study comments, diversification is one of the most-effective ways to manage investment risk.

A well-diversified portfolio with a long-term asset allocation to reflect a young investor's tolerance to risk spreads the risks and opportunities as well as helping to smooth returns from growth assets over the long haul.

A fundamental understanding for young investors is to realise that time is on their side.

 

Robin Bowerman,
Head of Market Strategy and Communications at Vanguard.
09 August 2017
www.vanguard.com.au

More Articles

Most Spoken Languages in the World

Check out the Most Spoken Languages in the...

Read full article

SMSF assets reach record levels amid share market rally

How SMSF trustees are investing their retirement savings. . Over 1.1 million Australians are now...

Read full article

Income-free areas set to increase from 1 July

People nearing retirement often want to know how much they can earn before it affects their pension, and now...

Read full article

Many Australians have a fear of running out

Longevity risk is a growing concern for many working Australians as well as retirees. . The fear of...

Read full article

LRBA interest rates increase for 2025

The safe harbour interest rate for related party limited recourse borrowing has changed for...

Read full article

How to get into the retirement comfort zone

A third of Australians retire without a plan. Here's why you should have one. . Working and generating a...

Read full article

Compliance focus impacts wind-ups

The ATO’s strategic increased focus on compliance is having a noticeable effect on the sector and is now the...

Read full article

NALE bill passed by parliament

The bill that will introduce changes to the non-arm’s-length expenditure (NALE) provisions has passed...

Read full article

Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

Financial Advice Sydney and the North Shore Office based in Gordon NSW

Financial Services Guide - Disclaimer & Privacy Policy

^