Alian Ollivierre says she jumped into investing at an early age – just 16 – after picking up the personal finance book “Rich Dad, Poor Dad” by Robert T. Kiyosaki.
Curious about investing, she socked away $90 in a mutual fund. As her career developed, she made a point of putting aside at least 20% of her income into investments such as real estate, stocks and bonds.
But Ollivierre, now 33 and a business coach, says her investment style changed when she got married last year. Now, she says shies away from riskier investments, like real estate projects that are fixer-uppers. Her new goal, she says, is to build generational wealth for the children she and her husband hope one day to have.
A life event like a marriage “makes you think more collectively how it will affect the family,” she says. “Before, I was more of a risk taker.”
Ollivierre isn’t alone, according to investment experts. Major milestones such as marriage, the birth of a child or a job change are often when investors take stock of their goals and tweak their investment styles, says Heather Lord, head of strategy and innovation at mutual fund company Capital Group.
“People tend to engage and change investment strategies around life events, period,” Lord says.
A combination of behavioral science and demographics – such as the fact that people are living longer – can help investors reassess their investment approaches at key moments. Below are three tips from investment experts.
Imagine your future
Investors in their 20s and 30s tend to take more aggressive approaches than older workers, yet one of the biggest risks for young workers is simply not saving for retirement, investment experts say.
While the rule of thumb is to sock away between 10% to 15% of annual pretax income, very few Americans stick to that, with a Bankrate.com survey finding only 26% workers save more than 10% of their income. Even worse, 21% say they aren’t saving anything.
A simple behavioral technique – envisioning oneself in retirement – can prompt workers to save 31% more income, a study from Capital Group found. Women and millennials were even more likely to want to save more when they pictured their golden years, the researchers found.
“Millennials have a lot of competing demands on their income,” Capital Group’s Lord says. Because that adds to the challenge of saving for retirement, picturing retirement may help them get into the habit of putting money aside. And women, who tend to live longer than men, may need their assets to stretch farther.
Reassess risk at key milestones
As in Ollivierre’s case, investment experts recommend reassessing your investment style and risk tolerance at key milestones to ensure you’re on track for retirement or other investment objectives.
While an investment approach will be based on an individual’s risk tolerance and goals, it’s important to take a wider view of risk as you advance in your career, says Scott Sparks, wealth management adviser at Northwestern Mutual.
“Make sure you don’t overlook some risk management strategies, like planning for unexpected issues,” he says. That means making sure you’re covered by disability, life insurance and a will, he notes. More than half of retirees stepped back from work before they had planned to due to job loss and ill health, Transamerica found in a December study.
Sparks also stresses the importance of tax strategies, such as tapping the tax advantages of various investment vehicles like health savings accounts and traditional and Roth IRAs. These vehicles can help manage tax liabilities now and in retirement, an issue that workers should examine when they reassess their investment styles at key points.
Retirement’s new game
Fewer American workers today have pension plans as employers have shifted to 401(k)s and other defined contribution plans, points out Dan Keady, chief financial planner at TIAA. At the same time, many workers may spend three or even four decades in retirement, compared with 10 or 15 years in previous generations.
“People are seeing their parents without a detailed income plan and no contingencies for longevity,” Keady says. “The children of these people are seeing firsthand the impact of not having those pension accounts.”
That’s prompting advisers to rethink the conventional wisdom of shifting into conservative investments like bonds as workers approach retirement. Because bonds aren’t providing the same returns as in the 1970s and 1980s, they may not provide the income needed for decades-long retirements.
Workers may want to consider investing in several buckets as retirement approaches, says Northwestern Mutual’s Sparks. For instance, some investors may create a portfolio they won’t touch until they reach 80, enabling a more aggressive investment strategy geared toward growing those assets.
But the investments to fund the first few years of one’s retirement will likely be held in more conservative investments to protect against market volatility, Sparks adds.
Overall, expect to revisit your investment style and approach every three to five years or when you have a major life change, Sparks says. “Have a blueprint as early as you can,” he says. “The sooner the better, but it’s never too late.”