If you are in your 20s and your parents are near retirement, do you think you should have different investment strategies? Of course you should!

The Early Years

Through your twenties and well into your thirties, you are a long way from needing your retirement income. When you have a 30-40 year horizon until you retire, you can invest in risky investments that have a potential for longer term growth.

At this point in your life, I would invest heavily in equities (stocks). It is a good idea to diversify; you should consider mutual funds and index funds rather than picking individual stocks. A mix of US large cap, US small cap, international, and emerging market equities should make up virtually your entire portfolio.

Mid-Career

From your 40s into your 50s, you should transition away from risky investments, such as small cap stocks and emerging markets should be a smaller focus. At this point, the large ‘blue chip’ stocks, index funds, and fixed income investment (bonds) should be your focus.

Why the change in strategy? Large cap stocks and fixed income investments are less volatile than small cap and international stocks. Because you are now 10-20 years from retirement, you can’t afford the time to bring everything back if there is a major drop in your portfolio. You can still take some risk, but it should be more calculated.

You should be mixed between equity and fixed income at this point, with a slight favorability toward the large cap stocks and index funds.

Nearing Retirement

As your late 50s and 60s come up, you should be retreating to even more stable investment options. Of course, treasury bonds will not grow as much as a stock might grow, but you can’t afford big losses in your portfolio as you near retirement.

At this point, solid blue chip stocks and index funds should make up a small portion of your portfolio while fixed income and government bonds make up the bulk of your holdings. Keeping some cash on hand is also a good idea for security.

The Golden Years

You are done with work. Mazel tov! As you enjoy a new life filled with golf and grandkids, you can’t afford to see your net worth take a hit regardless of what is happening in the markets. You can’t deal with volatility.

Move away from stocks completely, or make them a very, very small part of your portfolio. Government bonds should be the bulk of your investment holdings. You should also keep a healthy cash cushion with zero risk.

Balance Risk and Return Goals

I have always been somewhat risk averse, but that does not mean I do not take risk. I am willing to buy into foreign stocks and emerging markets due to the potential for growth, but I don’t want to see a big loss so that is a smaller holding for me.

What I think my Dad should do and what I think I should do are very different. You have to decide for yourself exactly what the right mix should be, but know that higher risk can lead to higher returns, but it is called risk for a reason.

What is your investment strategy for your retirement fund? Please share in the comments.