In: Finance
What mutual funds would you recommend for a 22 year old college graduate who just landed their first real career job? They are making 35,000 dollars a year. They are able to invest 100 dollars every month into their 401K plan. They will retire at age 70. They are young and they are not frightened of risk. They have 48 years to invest. What would you suggest for them? Be very specific in your recommendations.
INVEST IN 100% EQUITY MUTUAL FUND initially and slowly increase proportion of DEBT MUTUAL funds by 5% every 5 years
All data seems to suggest that Equity gives the best long term returns ...a back testing of data shows around 10%+ returns if you stay invested for long periods of time . Debt fund returns are probably half of that .(Apart from a period in the 80s). More importantly in recent times equity has outperformed bonds handsomely with interest rates LOW .Going forward the likelihood is equity will continue to outperform in the next decade or beyond.Assuming the 22 year old wont need the money in the near future would recommend he puts 100% of his savings in equity fund. Then every 5 years he can transfer 5% of his corpus to debt as a protection. So by 48 years he will have nearly 50% of his full savings in Debt .This is to lessen the volatility and risk associated with ones portfolio as he reached old age.