The Best Investment Strategy by Age [Ultimate Guide] | The College Investor Podcast

There is no "one size fits all" when it comes to the best investment strategy. But it's one of the questions I receive almost everyday.

From what do I invest in, to how to get started investing, to picking individual stocks, everyone is looking for a magic investment strategy that will make them millionaires overnight.

The truth is that doesn't happen. You invest in stocks because over the long run, investing in the stock market has outperformed other investments. But that doesn't mean you should invest everything in stocks.

Here's how to craft the best investment strategy and why you should always think about your portfolio and all your money as a whole. While we call this the investment strategy by age guide - your age is really subject to your investment time horizon. Check it out on the website.

Risk and Return by Asset Class

The first thing to remember when it comes to investing is that risk and return are always correlated. What this means is, if you want to earn more (i.e. have a higher return), you're going to have to accept higher risk (i.e. you might lose money).

Also, past performance doesn't guarantee future returns. That means just because something returned X% in the past, doesn't mean it will do it again in the future. 

Here's a great example of returns over the last 15 years, as well as risk/reward, from Novel Investor: 

Asset Class

Avg Return

Best 1yr Return

Worst 1yr Return

Large Cap Stocks

7.77%

32.4%

-37.0%

Small Cap Stocks

7.49%

38.8%

-33.8%

International Stocks

5.22%

32.5%

-43.1%

REIT

8.52%

35.1%

-37.7%

High Grade Bonds

3.87%

7.84%

-2.0%

Cash

1.25%

4.70%

0%

As you can see, assets like stocks have a great average return versus cash. However, cash won't lose you money, where you could lose money in stocks in a one year period of time.

That's why, as you setup your investment strategy, you need to take your risk tolerance and time horizon into consideration. 

Reminder: Investing is Long Term

Investing is not gambling - and investing is long term. If you invest today, could you lose money? Yes. 100%. 

If you don't invest in a portfolio of diversified investments, do you increase your risk of losing money? Yes.

If you follow individuals who pick stocks and trade, do they win sometimes? Sure. But so do gamblers in Las Vegas.

If you go back to that table above, investing is long term because you want to take advantage of the long term behavior of an asset class - you're not betting on the individual behavior of one company. And to achieve that result, you need to stay in the market for a long period of time.

There is no way to predict what will happen tomorrow, next week, or next year. But over the long term (decades), we can extrapolate some historical data to build an estimate of what usually works.

That's why you consistently will hear me (and most other financial planners) say that you need to invest in index funds over the long term.

Do You Need A Financial Planner?

Maybe. When it comes to investing, it can be scary. And creating an investment strategy can be confusing. But many people won't need a financial planner to help them. There could be other financial professionals that make sense (read this: