Typically, an investor will gradually reduce the exposure of their stock and overweigh equities as a senior citizen. At the same time, some will argue that a young investor should stay away from over-allocating toward stock as well. It is has been stated by CEO and chairman of Research Affiliates, Rob Arnott that portfolios that are stock-heavy are a bad choice for workers in their 20s. One of the reasons is because a recession could cause a worker to withdraw from their retirement funds early.
One of the portfolios that is aimed towards young investors is target-date funds. They tend to track a combination of bonds, stocks, and additional investments. Normally, this fund overweighs stocks and becomes more conservative for young investors, or overweighs fixed-income assets as an investor gets closer to retirement age. A great example is Deutsche X-trackers 2020 Target Date ETF. Its stock allocation is 46.3%, with a bond position at 53.2%. The Deutsche X-trackers 2040 Target Date ETF has stock allocation at 90.8% and bond position at 8.8%.
There was a group owned BlackRock’s iShares, with Target Date ETFs. In the past, they halted trading of the funds. It is normal for most people to overspend at a young age. It isn’t until they reach the peak of their earning years that they aggressively save. Although a young adult may have inherited a large sum of student loans, they are still starting families, saving down-payments for their first house, and creating financial self-reliance.
Arnott has stated that most young workers have a greater chance of losing their job, during a recession without enough savings to survive. The unemployment rate for workers between 20 and 24 years of age was an average of 10%, while workers that were 25 to 34 were 6% and workers 35 to 44 were 5%, respectively.