One of the most difficult things to determine when you’re first learning about personal finance is how you should adjust your portfolio based on your age. Just like a 25-year-old should have a different workout routine than someone who is 75, they should also have a different investment portfolio.
However, with so many different types of assets, it can be tough to know where to get started.
For this article, we are going to take a look at what the ideal investment portfolio for a 25-year-old is.
What’s your investment profile?
Before you can determine what your portfolio should look like as a 25-year-old, you first need to determine what your investment profile is. Since everybody is a little different, everyone will have a slightly different investment portfolio. That being said, most 25-year-olds are usually at a similar point in life in terms of their finances.
In a recent survey of borrowers with $5,000 or more of debt, 42% said that their student loan debt triggers high levels of both mental and emotional stress – more than other types of debt.
With student loans set to exit forbearance on January 30th, many borrowers are beginning to think about their monthly payment’s imminent return. To alleviate some of this pressure, our experts at Bankrate created this guide on the best ways to deal with stress from student loans.
For example, here are a few common financial attributes of most 25-year-olds:
- They recently graduated from college and likely have student debt.
- They are just starting their career and do not earn a high salary yet.
- They have lots of time to invest money and recover from any mistakes that they make.
Assuming that these three factors are true, let’s take a look at the ideal breakdown for a 25-year-old.
The main advantage of being younger is that you have a lot of time for your money to grow. This means that you should take a much more aggressive approach to your investing. Since you have plenty of years until your retirement, your portfolio will have time to recover from any dips early on.
To do this, many financial advisors will recommend a portfolio that is 90% or even entirely stocks. When doing this, investing in index funds is one of the best ways to take advantage of the long-term compounding power of the stock market.
Bonds are fixed-income assets that are better for creating income than they are for growth. Since younger people have such a long time for their money to grow, they should only allocate about 10% of their portfolio to bonds.
Cryptocurrencies are known for being one of the riskiest investments in the financial world. However, they also have a lot of potential and could eventually become a staple in the average portfolio. Since they are still incredibly risky, even younger people are better off only allocating a small portion of their portfolio to cryptocurrency.
A few other assets that could be included in a portfolio are commodities, alternative assets (such as fine art), or real estate. However, we would not recommend that a 25-year-old spend a lot of time investing in these.
We hope that you’ve found this article valuable when it comes to learning what the investment portfolio for a 25-year-old looks like. If you are interested in learning more, please subscribe below to get alerted of new articles as we write them!