Balancing Your Portfolio: Asset Allocation Strategies by Age

In today’s post, we will discuss the importance of considering different asset allocation strategies based on age. Let’s use your wardrobe as an illustrative example.  

When you’re young, your closet might be full of bold, trendy outfits that might go out of style quickly but offer the chance to stand out at a moment’s notice — similar to higher-risk investments that can yield above-average returns.  

As you age, your wardrobe gradually shifts. You start valuing classic, higher-quality pieces of clothing that don’t go out of fashion as quickly— much like putting increasing emphasis on less volatile investments such as fixed income, alternatives, or higher dividend-paying, blue chip stocks.  

We think your asset allocation strategy needs to evolve just as your taste for clothing does, adapting to different stages of life to help maintain a suitable mix of risk exposure and investment results. 

As Austin portfolio managers, we’ve been helping clients balance their portfolios as they age and experience major life events that impact tolerance for risk and return expectations. Strategic asset allocation is not merely about mixing assets but about understanding the nuances of the market and responding proactively. We believe being proactive investors is much better than being purely reactive. At Beck Capital Management, we strive to create diversified portfolios that reflect the current economic climate and our client’s expectations for the future. 

Read our newest Quick Guide: A Guide to Understanding Asset Location vs Asset Allocation

Strategic Asset Allocation in Your 30s 

When you’re in your 30s, your asset allocation strategy typically focuses on higher performance because you have a long time horizon to recover from potential losses. While you might be more aggressive in your investment choices, it’s also wise to form a solid financial foundation that considers potential future needs, such as family planning, funding children’s education, homeownership, and retirement savings. 

The following are frequently used strategies and examples for managing your investments during your 30s. 

1. Given the potential for higher returns (and higher risk), a significant portion of your portfolio could be allocated to stocks and other high-growth assets. This configuration aims to capitalize on growth over an extended period of time.  
2. Investing in various sectors (like technology, healthcare, and consumer goods) and world regions (including emerging markets) can also help spread risk and enhance returns. We believe some of the best investments are not headquartered in the U.S. This could include a combination of domestic and international investments to create a global investment strategy.  
3. Maximizing contributions to retirement accounts such as a 401(k) or IRA can be prudent. The sooner you start saving, the longer you have to compound your return rates at tax-preferred treatment. 
4. Consider allocating a small portion of your portfolio to alternative investments like real estate, private equity, or private credit. These can offer additional diversification and the potential for higher returns. 

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Asset Allocation in Your 40s 

When you’re in your 40s, your financial goals and time until retirement create a unique opportunity. This decade is often characterized by peak earning years and increasing financial responsibilities such as family expenses, mortgage payments, and college education costs for children. 

Investing the wealth accumulated in your 30s and the increasing wealth from your 40s creates an increasingly complex financial picture. These strategies include growing existing wealth and accumulating additional wealth during this all-important decade. Each financial decision should be tailored to your current financial circumstances, risk tolerance, and goals. 

There are a few strategies worth considering.  

1. At this stage, you may still have 20+ years until your desired retirement date, allowing plenty of time for a relatively aggressive investment strategy with a shift towards reduced volatility. A potential approach is to maintain a mix primarily of stocks while beginning to add exposure to fixed income and alternatives. This allocation will help you pursue growth using equities, stability, and income by investing in slightly more conservative assets. 
2. Ensuring your investments are spread across different asset classes (stocks, bonds, real estate, alternatives) and geographies can help you manage your exposure to financial risk. For example, international stocks can be a part of your portfolio to take advantage of the growth in markets outside the U.S.
3. Your 40s are an excellent time to review your investment portfolio to ensure it stays aligned with your capacity to take risks and goals. It can be beneficial to ensure your portfolio is adequately diversified and allocated to the proper areas of the market. Ensuring an appropriate asset allocation can help improve returns and manage risk.
4. If saving for your children’s college is one of your goals, consider a strategy that includes 529 college savings plans. These plans offer tax advantages and can be a mainstay for your college funding strategy.
5. You should maximize contributions to your retirement accounts, such as 401(k)s and IRAs. If you haven’t already, look into starting a Roth IRA or converting existing retirement accounts into Roth IRAs for tax-free growth during your asset accumulation years and tax-free withdrawals during your retirement years. 

What’s Going on with the Fed? Listen to our podcast on this important topic. 

Adjusting Your Strategy in Your 50s 

In your 50s, asset allocation becomes especially crucial as you spend more time thinking about retirement dates and funding your lifestyle after you stop working. Your evolving focus typically requires a more balanced approach to pursuing growth with reduced exposure to risk. 

By adjusting your asset allocation in your 50s, you can emphasize preserving your accumulated assets. This is much different from your 30s when your critical mass of assets was smaller, and your risk tolerance was higher.  

Here’s how you can approach asset allocation in your 50s. 

1. To help manage risk, diversify your investments across multiple asset classes, such as stocks, bonds, real estate, and more conservative alternative investments. You do not want one economic event impacting all of your assets. Increased diversification helps manage your risk of significant losses.
2. Consider a more conservative allocation in your equity portfolio to help reduce even more risk. Larger, cash-flowing companies can offer growth potential with a more conservative risk profile. This part of your asset allocation strategy should focus more on income generation and capital preservation. This might translate into a higher allocation to fixed income assets, dividend-paying stocks, and income-producing real estate. 
3. Maintaining exposure to equities is still beneficial because it usually provides higher returns that combat inflation. Also, due to the increase in longevity, you and your spouse may live well into your 90s. This creates a 40-year investment horizon. At Beck Capital Management, we recommend balancing the portfolio between sectors and within sectors, leveraging our capability for managing risk and return. 
4. Increasing your fixed income and alternative holdings can help preserve principal because these assets can provide higher income components and are less dependent on capital appreciation. 
5. If not included, consider Real Estate Investment Trusts (REITs) for diversification in another type of asset. REITs have the potential to produce increased income with capital appreciation.
6. Review your investment portfolio regularly to adjust the allocations as necessary. As retirement nears, shifting towards more conservative assets will be prudent. 

Asset Allocation for Those 60+ 

When you’re in your 60s, asset allocation becomes crucial as you approach your preferred retirement date and/or are recently retired. You must make many critical financial decisions as you evolve from working to retirement. For example, your focus gradually shifts from growth to increased capital preservation and income. This makes the five years before and after your retirement date of critical importance. A stable investment account will make your retirement planning easier.  

The key is to stay flexible and responsive to current market conditions but stay focused on the pursuit of your longer-term retirement goals: 

• A balanced portfolio in your mid-60s might consist of a balanced asset mix divided between stocks, bonds, and alternative investments. The goal of this strategy is to continue to emphasize risk management with some growth to offset the erosive impact of inflation.  

• Including assets like dividend-paying stocks, fixed income, alternatives, structured notes, and Real Estate Investment Trusts (REITs) can provide regular income. This is vital when these assets produce the returns that fund your lifestyle during retirement.  

• Remember, at age 65, both spouses’ investment horizons may still be 30 or more years. A lot can happen in 30 years. 

• Tactical asset allocation is another strategy to help your portfolio during market downturns or short-term market swings. Beck Capital Management’s tactical asset allocation approach makes adjustments that reflect current market conditions without compromising the portfolio’s integrity or exposing it to unnecessary volatility or tax consequences (if applicable). 

For example, suppose the stock market is trending down due to higher inflation rates. In that case, it may make sense to increase portfolio allocations to more conservative asset classes – cash alternatives, income-producing real estate, etc. Additionally, along with producing income, your assets should be capable of delivering long-term returns that offset distributions, inflation, and expenses. 

How Beck Capital Management Can Help 

Strategic asset allocation is a dynamic process tailored to your needs and current market conditions. Our approach to portfolio management ensures that our clients pursue their financial goals with sophisticated planning and responsive investment principles.  

Ready to learn more about how Beck Capital Management can help you manage your portfolio? Connect with us.

Nothing contained herein is to be considered a solicitation, research material, an investment recommendation or advice of any kind. The information contained herein may contain information that is subject to change without notice.  Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. 

Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. 

Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market.  They are methods used to help manage investment risk. 

Past performance is no guarantee of future results. Investing in the stock market involves gains and losses and may not be suitable for all investors.   

There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends. 

Sector Strategies: Portfolios that invest exclusively in one sector or industry involve additional risks. The lack of industry diversification subjects the investor to increased industry-specific risks. 

Beck Capital Management does not offer legal or tax advice. This information should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before making any decision or taking any action, you should consult with a qualified professional. 

Alternative investments, including hedge funds, commodities, and managed futures involve a high degree of risk, often engage in leveraging and other speculative investments practices that may increase risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are subject to the same regulatory requirements as mutual funds, often charge higher fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. 

A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.  There are risks associated with these types of investments and include but are not limited to the following:  Typically no secondary market exists for the security listed above.  Potential difficulty discerning between routine interest payments and principal repayment.  Redemption price of a REIT may be worth more or less than the original price paid.  Value of the shares in the trust will fluctuate with the portfolio of underlying real estate. There is no guarantee you will receive any income. Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes.  This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein.  The offering is made only by the Prospectus.