Does Smarter Investing Come With Age?
As you age your investment mind changes. Not only do you become more conservative then you were say in your 20s, but you also become better suited to handle stress. Why? By your 50’s and beyond you’ve seen it all before. You may be wiser, but does older age really yield smarter investing?
This question was brought on by an interesting article I just read from CNNMoney, and here are some facts for you to ponder over from it:
1. “…brain scans show that people in their twenties get much more upset than older folks do when they expect to lose money. It turns out that investors in their sixties and beyond are considerably better at withstanding the mental stresses of a bear market than young investors are.”
2. “As you grow older, your brain gets more impulsive; in some ways, becoming a senior citizen is like being a teenager again. As your fears abate, you’re more easily swayed by appeals to positive emotions - which helps explain why get-rich-quick artists prey on the elderly.”
3. “Economist David Laibson has shown that people over 65 are twice as likely as those in their late thirties to fall for a teaser rate on a credit card; the thrill of the low up-front rate blinds older borrowers to the burden of future high-cost debt.”
4. “…people in their sixties and beyond tend to narrow their social circles, preferring to spend time with family and friends they already have. That can make it hard, once you’re past a certain age, to get the financial advice you may need.”
The article then goes on to give some ideas:
“Guard against impulsiveness
To keep con artists - or a cold-calling stockbroker, for that matter - from turning your head with promises of big gains, make sure you have installed caller ID on your phone and tough spam filters on your e-mail.
Find a trustworthy financial advisor
The sooner you do this, the better. You want this person to be in your “inner circle” in retirement.
Don’t be a fraidy cat
The rule of thumb used to be that you subtract your age from 100, turn the remainder into a percentage and make that your maximum allocation to stocks. A 65-year-old should, by this formula, have no more than 35 percent in stocks. By the time you reach 80, you would be down to 20 percent in stocks.”
I think that this rule is very interesting as I know a lot of senior citizens follow it to an extent. Most older people will move further and further away from the high risk of stocks and place their retirements in the hands of younger knowledge brokers that invest them in mutual funds.
With your aging though and your stress free mental make up, you will have a far greater advantage as an investor. Not only that, but you also have the wisdom from years of experience investing in the markets.
By default smarter investing does come with age and it is something that should be utilized, not surrendered.
Source:
Inside the Mind of the Older Investor
Jason Zweig
CNN Money, November 13, 2007
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This might be true for people in general, but personally I view experience in the stock market as more important than age of the investor. I really think that no matter what your age is, when it comes to investing you have to discipline yourself in a way you’ve never had to in the past. And the best investors build that discipline through the experiences they have in the stock market, in my opinion. But hey I’m just 21 years old, what do I know?
This is a great post. I know I definitely get upset by the most minor changes in the market. I’m trying desperately to get over that though. I guess it just comes with age. My advice is that if you are investing for the long term, make your investment and try not to watch it on a day to day basis. Let it be and check on it every few weeks or so. If you truly are in it for the long term, the day to day dips mean nothing.
I’m 36 years old, so I guess I’m close to being in the sweet spot. I have some experience, but my brain hasn’t deteriorated (much) yet.
I disagree with the 100-age though. I’d like to think when I start living off investments alone I should have maybe one year of expenses more liquid (money market or CDs) and the rest can ride in stocks where I’ll continue to have better gains over the long term. Stocks are going to beat inflation by a greater margin than bonds and the longer we tend to live the longer our money needs to last and continue growing.