Question

You have two friends. One is 25 years old and the other is 55 years old. Both have a net worth of $1 million and, other than age, their situations are identical.

How should their investment portfolios differ? Why?

Answer 1

As both friends have an age gap their investment portfolio's investment will differ massively. For the friend who is 25 years old and has a net worth of of $1 million, should invest in securities with higher risk as he has the appetite for it. He should invest 70% into equity and 30% into fixed income securities. He has just started his investment journey and has a fixed income coming in every month as salary. Because of all these reasons he can look for growth in his portfolio and has the ability to loose money.

However, for the friend who is 55 years old has his retirement coming close and has to plan accordingly. His investment should include maximum of fixed income securities and very less equity. He should invest approximately 70% into fixed income securities and a maximum of 30% into equity. As in his retirement he will have no income from salary, he will be dependent on interest income from fixed income securities for his daily expenditure. He should we looking at capital security at this point and not capital growth.

Do let me know in the comment section in case of any doubt.