Does age affect the profitability of the trader and the investor?
Yes, the age of the trader or investor has a significant impact on the percentages allocated to trading and investing, as the age stage directly affects risk tolerance and financial goals. As a person gets older, they often become more cautious about risk and tend to invest for the long term, which provides greater stability, while younger people are usually more open to taking risks through trading.
🌟 How does age affect the allocation of ratios between trading and investing?
1. Young investors (20-40 years old)
Younger investors are generally more risk-averse because they have a longer time to recover from losses. For this reason, they may allocate a larger percentage to active, high-risk trading than older individuals.
- Percentage allocated for trading: Young people usually allocate between 15% and 25% of their portfolio to trading.
- A percentage allocated for investment: The remainder, i.e. 75% to 85%, is allocated for long-term investments.
Detailed examples:
- A study from "Bankrate" (2021): It showed that young people in their twenties and thirties are often inclined to take risks, as they have the time flexibility to recover from market volatility. Therefore, they can increase their trading allocation relatively more than other age groups.
- Analysis by Charles Schwab (2020): He pointed out that young people who invest in high-growth assets such as technology and cryptocurrencies tend to allocate a higher percentage to trading to make quick profits.
Does age affect the profitability of the trader and the investor?
👈 Middle-aged investors (40-60 years old)
Middle-aged people are typically in the process of accumulating capital, but they are also beginning to prepare for retirement, so they are less willing to take risks than younger people.
- Percentage allocated to trading: It is recommended that investors in this age group allocate about 10% to 15% of their portfolio to trading.
- Percentage allocated to investment: The rest of the portfolio, i.e. 85% to 90%, is allocated to long-term investment, with a focus on investments that generate a fixed income and achieve greater stability.
🌟 Detailed examples:
- A study from Fidelity (2022) showed that middle-aged investors tend to reduce the percentage allocated to trading due to the need to preserve capital, and begin to shift towards more conservative strategies as they age.
- Article from "The Balance" (2021): Suggests that people in their 40s and 50s can maintain a mix of moderate-risk assets like stocks along with fixed-income investments.
👈 Older investors (60 years and older)
As retirement approaches, people in this age group typically seek to significantly reduce risk to ensure their savings are preserved and financially stable in the years to come. They focus more on fixed-income investments, such as bonds and real estate, and significantly reduce the percentage allocated to trading.
- Trading margin: The trading margin at this stage can be very low, ranging from 5% to 10% only.
- Investment allocation: It is recommended to allocate 90% to 95% of the portfolio to long-term investments that generate fixed returns or provide stable income.
🌟 Detailed examples:
- A study from "Morningstar" (2021): shows that people over 60 prefer to minimize risk and focus on safe assets such as bonds and low-risk mutual funds.
- Analysis from Vanguard (2021): It indicates that many older investors rely on a steady retirement income and do not want to risk any significant portion of their capital, making trading a limited activity for them.
🌟 Additional practical examples:
- Young man in his twenties: A young man in his twenties allocates 20% of his portfolio to trading cryptocurrencies or high-risk stocks to make quick profits, while allocating 80% to long-term investments in technology companies or Bitcoin.
- The middle-aged investor: A person in their 40s who allocates 10% of their portfolio to trading emerging stocks or cryptocurrencies, while keeping 90% in diversified mutual funds or fixed-income stocks.
- Retired investor: Someone in their 60s who allocates only 5% to trading, directing the rest of the portfolio toward safe bonds or fixed income funds.
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