Whether you’re in your 20s or approaching retirement, understanding how to adjust your portfolio to match both your time horizon and the economic landscape is key.
This begs the question of how your investment strategy should evolve as you move through life. And how does a rising interest rate environment change the conversation?
Let’s break it down by decade.
In your 20s or 30s, you may have a longer time horizon, which can offer more flexibility in your investment approach. This is typically the stage for aggressive growth, meaning a portfolio that’s close to 100% equities. Market fluctuations are easier to weather when you have decades before retirement, so long-term growth takes priority.
As you enter your 40s, it’s time to start shifting. At this point, a 90/10 portfolio (90% equities, 10% fixed income) might make more sense. This gradual introduction of fixed income helps reduce volatility while still allowing for growth.
By your 50s, an 80/20 portfolio is a common next step, followed by a 70/30 allocation in your 60s. This shift helps preserve capital while still participating in market growth. However, asset allocation isn’t just about age. It’s also about the environment you’re investing in.
Over the past 40 years, we’ve lived through a historic bull market in bonds. Interest rates dropped steadily from over 15% in 1980 to just 0.52% during the COVID-19 lows, but now we’re in a rising rate environment, and that changes the playbook.
Consider the following strategies:
- Shorten the duration of your bonds. Shorter-term bonds are less sensitive to rate increases, meaning they hold value better when rates rise.
- Take advantage of high-yield savings tools. Money market funds, high-yield savings accounts, and CDs are now offering attractive yields and can provide low-risk returns as part of your fixed income allocation.
- Rebalance your equity exposure. Growth stocks rely more on future cash flows and tend to suffer more when rates rise. Value stocks, which are often more fairly priced in the near term, may become more appealing in a higher rate environment.
Smart investing means adapting over time, not just to your age, but also to the economic conditions around you. Want to talk it through? Our advisors are here to help you make sense of it all.
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