The old saying goes that "life is what happens while you're busy making other plans." So here I write this post, nearly 5 years removed from my last. As you may imagine, a lot has certainly happened since then. My last post was made on October 4, 2011 when I had just graduated from college and began my first job. Since then, I have gotten married to the love of my life, been a member of the workforce for 4 1/2 years, and went to business school at nights while working full-time in order to earn an MBA. The cliche that time flies couldn't be more accurate.
What those 5 years have given me is valuable perspective (life experience, anyone?) that accompany entering adulthood. It's one thing to write about financial management and investing for those just entering the real world, but it's another to actually live it on a daily basis. I'm happy to note that the very investing ideas that I was discussing nearly 5 years ago are the same ones that I implement in my life now. My 401(k) asset allocation is balanced yearly between 3 funds and it's a basic allocation that should work for most young investors:
55% - broad, total stock market index fund
35% - total international index fund
10% - bond index fund of choice
The last option - the bond fund - is not a necessity for most investors under 30, and it may very well be your preference to remain 100% invested in equities. After all, as interest rates rise, the price of bonds go down in an inverse relationship. Since the Federal Reserve raised its target fed funds rate (i.e. 'raised interest rates') in December 2015 for the first time since 2008, many economists expect a pattern of tightening may continue over the next year or so depending upon economic conditions. As the Fed continues to raise rates, bond prices are likely to fall which may hurt bond investor's returns. This doesn't matter much to the long-term Generation WI$E investor, but it's important to note. However, having some exposure to bonds gives you the added benefit of extra income and diversification. If you own the bond fund in your 401(k), you will receive tax-deferred monthly income from the bond fund that can be reinvested to buy more shares in order to leverage the benefits of compounding.
There will certainly be much more to discuss over the coming weeks and months as both the world and financial information flow has changed dramatically in the 5 years since I last posted. I'm looking forward to sharing more of my real world financial journey with you as I continue my goal to make us all members of Generation WI$E.
