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How To Determine The Best Investment Mix At Any Age

By Jason Markum

Investing isn’t easy. Hardly anyone ever gets rich investing. In fact, you goal should not be to get rich investing. Your goal should be to preserve your money, not to make your money. What does this mean? It means that if you invest your money looking for the next hot tip that will shoot to the moon then you are going to be disappointed, probably even lose all your money. But if, on the other hand, you invest your money with a focus on simply preserving it (growing it at or slightly above the level of inflation) then you will probably be pleasantly surprised in the long run because you will get lucky little bumps every now and then from breakout companies etc.

That begs the question…how exactly should one allocate their investment portfolio? Should you diversify? Stocks, bonds, metals, real estate? It’s all very confusing!

Many people, including major investment and mutual fund companies will suggest a balanced portfolio based on your age.

The logic goes something like this….the younger you are the more risk you can afford to take, therefore the more chances you should take in riskier stocks. After all, if you lose it all, you still have lots of time to make up for it!

Then if you are in middle age, you should start to put an eye towards safer, less risky investments because you have less time to make up for it if something goes wrong and you lose all your investment capital because of bad stocks.

And finally, the logic goes, that if you are at or near retirement age, then you should switch almost entirely out of the stock market and into super safe government bonds because you cannot afford to take any sort of risk with your money at this stage in the game.

There is a certain amount of logic in that argument, but I think it’s hogwash. I realize that everyone has a different risk profile, and appetite for risk, but in my opinion you shouldn’t play the stock market at all- ever- no matter what your age is unless it is your full time profession. That is to say, unless you WORK on Wall Street, you should not invest in individual stocks on the stock market.

Why? Because the stock market is a zero sum game. Some one always wins, and someone always loses. The professional investors will win, that’s their job, and they will often do it at the expense of the regular investor who can’t possibly be expected to compete against real professionals.

So what should you do?

No matter what age you are, I suggest you take this approach. Set up an account to automatically invest X dollars into a retirement account each month, no matter what, and have that retirement account purchase shares in a stock market index fund that mirrors the broad market like an S&P 500 index fund.

These are funds that try to mirror the entire market. Automatic monthly investment gets the law of averages on your side and you can expect to earn a nice 6% to 8% per year on your investment because this is the average yearly return of the stock market. It’s not much, but it will keep up with inflation and create a steady and safe portfolio that you can rely on.

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