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Wealth Managers: 20% Returns Isn’t For Everyone
Aspire, Investments | 26 February 2015
By: Lim Si Jie
Articles (169) Profile

Wealth managers are seldom unanimous about stock picking. However, they are on the same page about one thing: the biggest and most common problem among retail investors.

Wealth managers think that the pressing issue among retail investors is that most of them “don’t understand risk management.” Investing not only requires knowledge about financial and technical analysis, but also acknowledging your age and how it affects your investment decision.

Risk management

In our youthful days, we would tend to be more adept in taking risks in hopes of getting rich. However, as age catches up, our priorities would shift to protecting our possessions; ironically, here lies the problem. Wealth Management president Adrian Mastracci believes that “the hardest life change for most investors is shifting their mindset from capital accumulation to capital preservation.”

Youths: Growth Investments

Youths should allocate 60 percent of their portfolio for stocks and the rest for bonds. More aggressive investors would even allocate up to 80 percent for stocks. Generally, returns for young growth investors range between 10 to 15 percent depending on how much risk they take.

Growth investments are most suitable for younger people with longer time horizons. They have plenty of time to wait for investments to grow and enough time to recover from investments that lose value over the short term.

Middle-aged: Balanced Investments

The middle-aged investors make up the majority of balanced investors and should typically split their their portfolio evenly across stocks and fixed income instruments such as government and corporate bonds, cash or money market products.

The average returns range from five to seven percent, considering that most balanced investors have a steady flow of income and only need to beat inflation.

Retirees: Income Investments

Income becomes a priority when investors reach the retirement age of 60. Fixed income investments should take up about 60 percent of one’s portfolio while the rest can be spent on stocks with rich and safe valuations. These stocks should provide a consistent dividend payout.

Investors that are enjoying their twilight years should consider reducing their equity holdings to 20 percent and move them into capital preservation instruments like bonds.

Next time when someone tells you to set and forget your investments, take it with a pinch of salt.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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