Millennial money: It’s time to change your investment strategy

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The passage of time feels like it’s creeping up and then rushing at you. Suddenly, conversations at parties focus on real estate, how to go to bed early, and the realization that you don’t know what kind of jeans to wear. For years, Millennials have been the butt of financial jokes. “They spend all their money on lattes and avocado toast!” “Why don’t they get a job at minimum wage to pay for college like I did?” But the cliche is It got old quickly.

And now, as Millennials enter their 30s and 40s, there are some things they should consider changing. Most notable is our investment.

You may need to calm down your portfolio

For those lucky enough to invest early, the advice to invest often and invest in aggressive assets to take advantage of long-term growth was pretty standard. Target-date funds held in 401(k)s, which automatically rebalance your portfolio as you age, are typically geared toward riskier investments. Probably the most active among us have dipped our toe into cryptocurrencies or meme stocks at some point. After all, at 24 years old, you have plenty of time to ride out the ups and downs of the market.

But now we are more mature. And with that wisdom comes new responsibilities, such as adjusting asset allocation. Asset allocation is just a fancy way of saying what percentage of your portfolio goes into each investment. For example, a 20-year-old’s $100 investment portfolio (just do the math) could be 90% stocks and 10% bonds, or $90 and $10, respectively. As you approach retirement, it’s a good rule of thumb to shift your allocation to less risky positions, such as 60% stocks and 40% bonds, but the exact percentage will depend on your personal financial situation.

“Generally speaking, as you get older, you tend to take less risk,” says Aaron Hatch, a certified financial planner and founder of Woven Capital in Redding, California. “In your early 20s, when you have nothing to lose and have time, you can afford to take all kinds of risks. As we inch closer and closer, it may be worth considering slightly reducing your exposure to stocks and other risky investments to remove a bit of risk.”

Change in strategy

One easy way to determine if it’s time to change your asset allocation is to look at a model portfolio. Some brokerages offer examples of what target-date funds can look like on different timelines to retirement. Please consider these diagrams and adjust your diagrams accordingly.

For example, if you’re 30 years old and planning to retire at 65, you can check out a portfolio that shows you what a target date fund for someone retiring in 2060 looks like. A fund that consists of approximately 10% bonds. If you’re in your 40s, your recommended portfolio might be closer to 15% bonds.

Model portfolios are helpful, but they’re not perfect. Maybe you own a large amount of virtual currency or real estate. These types of investments should be considered when moving assets, and getting a second opinion can be helpful. Some financial advisors will meet with you to examine your portfolio if necessary.

“Working with a financial planner can truly save you thousands if you develop a tax-efficient withdrawal strategy and systematically withdraw money from your account,” says deMAURIAC, a financial planning firm in New Orleans. says Marigny Dumauriac, CFP, founder of . “We understand the tax implications of withdrawals and can help you coordinate withdrawals with Social Security benefits and other income sources to optimize your retirement.”

What happens now after retirement is important

When changing your asset allocation now, it’s important to think strategically about the future.

“The type of account an individual has and the cash they need in retirement will determine their retirement withdrawal strategy. 401(k) and rollover IRA withdrawals are taxed as income, so how much of it can be used to cover retirement living expenses? It’s important to keep taxes in mind when deciding whether to withdraw money from an account type,” says Hatch.

Let’s think about what happens after you retire. If you sell investments to earn extra money in retirement, you won’t pay capital gains taxes on the proceeds unless you invested in a Roth 401(k) or IRA account and taxes have already been paid. You may have to pay. But if you know you’ll have to pay tax on the money, it’s worth calculating the amount you owe and setting it aside.

And DuMauriac says you may need to invest even after you retire.

“You might live into your 90s, so you can’t just move everything into cash and call it a day,” DuMauriac says. “Most people, even in retirement, need to plan for account growth to outpace inflation.”

Asset allocation, like many midlife chores for millennials, may not be glamorous, but it may help pay for the avocado toast you enjoy in retirement.

This column was provided to The Associated Press by the personal finance website NerdWallet. The content is for educational and informational purposes only and does not constitute investment advice. Alana Benson is a writer for her NerdWallet. Email: [email protected]. X (old Twitter): @alananeedsanap.