Can society's elders teach the young anything? History often dictated the young had to experience disaster for themselves before believing they were heading into it. This has frustrated many parents. But the enormity of the 2008 financial collapse may provide the lesson and opportunity to steer the young in the right direction.
Seeing how much people lost because of unwise investment choices could cause a reaction in the wrong direction. It could encourage the feeling that you might as well spend the money while it's worth something, instead of saving it. That's not the response that we have been witnessing. Observing the reaction of those nearing retirement, despairing at their lack of funds, may have something to do with it. It's interesting to see how 'twenty-somethings' are turning to financial professionals ensuring they are set on the right course.
Lindsay is a good example. As soon as she was eligible to join her company's Group RRSP plan, she made sure she contributed enough to get the maximum employer match. The plan representative helped her in her decision by showing her the all-too-familiar graph detailing the effect of compounding gains. It really is amazing how much the first 10 years of investing can affect the final outcome.
She intends to contribute 1% more each year, even though there was no additional employer contribution, because of the tax savings. With that attitude, she can look forward to a well-funded retirement, almost regardless of the market fluctuations on the way.
The chief element influencing returns from investing is the asset allocation model that you adopt. It's easy to talk about equity funds versus bond funds, but asset allocation goes far deeper than that. With any type of investments, a fund can't be judged simply by it's name. You need to investigate deeper to understand what types of investments are being held and what the investment goals are. For instance, a 'value' fund may invest a substantial part of the portfolio in what might be considered 'growth' stocks.
By taking an active interest in her future, coupled with what financial professionals are telling her, Lindsay is learning a great deal about wise financial choices. These steps will allow her to understand and discuss her advisor's recommendations. After all, we all have different risk tolerances, which is why we need advice tailored to our propensity for risk. Those who have more years before their retirement will tend to carry more equity investments in their portfolio. However, there is no 'one-size-fits-all' perfect answer. Perhaps with greater awareness, the younger generation will avoid some of the pitfalls affecting those near retirement.
Copyright © 2010 AdvisorNet Communications Inc. All rights reserved. This article is provided for informational purposes only and is based on the perspectives and opinions of the owners and writers only. The information provided is not intended to provide specific financial advice. It is strongly recommended that the reader seek qualified professional advice before making any financial decisions based on anything discussed in this article. This article is not to be copied or republished in any format for any reason without the written permission of the AdvisorNet Communications. The publisher does not guarantee the accuracy of the information and is not liable in any way for any error or omission.