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Friday, April 07, 2023
Breaking down the average portfolio mix by investor age
Key takeaways
Investors’ financial portfolios change over time alongside their income, expenses and retirement horizon. But by how much? In what ways? Specifically, what does the average investor’s financial portfolio look like broken down by age and asset allocation? To find out, we decided to dig into our platform data.*
It’s not surprising that as investors age, the size of their portfolio grows, on average, until they reach retirement age. At this point, the size of the average financial portfolio starts to slowly decline. Things get interesting when we delve into how the average investor’s portfolio assets are allocated.
According to anonymized data from Personal Asset ’s personal wealth clients, younger investors in their 20s place a higher percentage of their assets in cash (28.4%) than any other age group except retirees in their 80s (29.4%) and 90s (31%). The median cash balance in the portfolios of those in their 20s is $31,589. Investors in their 30s keep 25.4% of their portfolio assets in cash (median cash balance: $53,377).
This might be due to the relative inexperience of many young people when it comes to investing and their aversion to taking on investment risk. However, by keeping so much of their financial assets in low-yielding cash instruments like savings and money market accounts, young investors might be missing opportunities to take advantage of long-term compounding to help grow their portfolios.
Young and middle-aged investors keep a relatively high percentage of their portfolio assets in stocks. Investors in their 20s, 30s and 40s all maintain about a 43% allocation of U.S. stocks and 11-12% allocation of international stocks in their financial portfolios.
The median value of stocks in portfolios for these age groups is as follows:
| AGE | U.S. STOCKS | INTERNATIONAL STOCKS |
|---|---|---|
| 20s | $79,690 | $13,878 |
| 30s | $140,186 | $31,366 |
| 40s | $281,459 | $62,421 |
Investors in their 50s and 60s keep between 39% and 42% of their portfolio assets in U.S. stocks and about 10% in international stocks.
The median value of stocks in portfolios for these age groups is as follows:
| AGE | U.S. STOCKS | INTERNATIONAL STOCKS |
|---|---|---|
| 50s | $432,740 | $93,509 |
| 60s | $459,189 | $101,852 |
Older investors in their 70s and over keep between 37% and 39% of their portfolio assets in U.S. stocks and between 6% and 9% in international stocks.
The median value of stocks in portfolios for these age groups is as follows:
| AGE | U.S. STOCKS | INTERNATIONAL STOCKS |
|---|---|---|
| 70s | $406,707 | $80,307 |
| 80s | $343,837 | $60,530 |
| 90s | $287,948 | $37,581 |
Home country bias refers to investors’ tendency to favor companies from their own country over those from other countries or regions. Home country bias is a worldwide phenomenon because investors are inclined to value local companies and brands over foreign ones.
Investors in their 20s maintain a high percentage (85.2%) of U.S. stocks relative to stocks from other regions. Investors in their 30s through 60s tend to be more geographically diversified, with between 81.7% and 82.2% of their stock exposure in the U.S.
Older investors tend to have the highest home country bias. Investors in their 80s have 85% of their stock exposure in the U.S., and investors in their 90s have 88.5% of their stock exposure in the U.S.
| AGE | U.S. STOCKS | INTERNATIONAL STOCKS |
|---|---|---|
| 20s | 85.2% | 14.8% |
| 30s | 81.7% | 18.3% |
| 40s | 81.8% | 18.2% |
| 50s | 82.2% | 17.8% |
| 60s | 81.8% | 18.2% |
| 70s | 83.5% | 16.5% |
| 80s | 85.0% | 15.0% |
| 90s | 88.5% | 11.5% |
Younger investors hold a much lower percentage of their portfolio assets in bonds than middle-aged and older investors. Those in their 20s, 30s and 40s all have a bond allocation (both domestic and international) of less than 5%.
While investors in their 50s have a total bond allocation (domestic and international) of 9.1%, the total bond allocation of investors in their 60s is 13.9%.
For older investors, bond allocations are as follows:
| AGE | U.S. STOCKS | INTERNATIONAL STOCKS |
|---|---|---|
| 70s | 12.5% | 2.5% |
| 80s | 12.7% | 2.3% |
| 90s | 12.4% | 1.8% |
Meanwhile, the average allocations and median amounts of alternative assets in financial portfolios according to age are as follows:
| AGE | AVERAGE ALLOCATIONS | MEDIAN AMOUNTS |
|---|---|---|
| 20s | 3.4% | $3,005 |
| 30s | 3.3% | $6,205 |
| 40s | 3.5% | $13,705 |
| 50s | 3.6% | $22,695 |
| 60s | 4.0% | $30,175 |
| 70s | 4.3% | $28,765 |
| 80s | 3.9% | $22,020 |
| 90s | 3.9% | $15,504 |
Asset allocation
An important key to creating a financial portfolio that helps generate sustainable long-term returns is choosing the right asset allocation based on your investing goals, time frame and risk tolerance. Your portfolio should be well-diversified, with the appropriate mix of assets across the main asset classes of stocks, bonds, cash alternatives and alternative investments.
Portfolio rebalancing
It’s also important to review your financial portfolio periodically and rebalance when needed. Over time, market movements can shift your asset allocation so it is no longer in line with your objectives.
For example, when stock prices rise, stocks might make up a higher percentage of your portfolio than you intend. To bring your portfolio back into balance, you could sell some of your stock positions and use the proceeds to purchase assets in other classes, such as cash alternatives and bonds.
Portfolio monitoring
Free online tools can help you monitor the performance of your portfolio holdings. With Personal Asset ’s Investment Checkup tool, you can:
*Anonymized user data from the Personal Asset Personal Dashboard™ as of June 2021. This data analysis only includes a subset of our free tools users. Following is the list of exclusions: limited to users that logged in in the past year; excludes accounts that are deleted, test, or invalid/bogus; also excludes those who are trading on margin (i.e. borrowing money to invest, leaving them with a “negative” cash holding); and excludes outliers with asset values greater than 10M in any asset category (e.g. cash, bonds).
Asset allocation, diversification, dollar-cost averaging and/or rebalancing do not ensure a profit or protect
against loss.
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Beau Simon is a Financial Advisor at Personal Asset . Beau first discovered an interest in investing and financial planning while attending California Polytechnic University, San Luis Obispo, where he served as the Director of Research and Investment for the Cal Poly Investing Club. Beau is particularly interested in Bitcoin, value investing, behavioral economics, impact/ESG investing and teaching financial literacy. In his spare time he enjoys soccer, skiing, and reading.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. No part of this blog, nor the links contained therein is a solicitation or offer to sell securities. Compensation for freelance contributions not to exceed $1,250. Third-party data is obtained from sources believed to be reliable; however, Personal Asset cannot guarantee the accuracy, timeliness, completeness or fitness of this data for any particular purpose. Third-party links are provided solely as a convenience and do not imply an affiliation, endorsement or approval by Personal Asset of the contents on such third-party websites.
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