Okay, so I don’t have grandchildren yet, but I want to increase the odds you read beyond the title if you are old enough to have grandchildren. Should the investment advice we give to someone young truly be different from that given to someone old? And given where asset prices are, is it responsible to tell anyone to pile into the markets? Here are my thoughts on the topic, hopefully applicable not just for my children:


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Hedge fund manager Ray Dalio likes to say he chose the first stock he ever bought because it cost less than $5 a share, given that his savings from caddying at the time were, well, five bucks. That story is a great icebreaker but also highlights with what’s wrong with our industry: when we think about investing, we immediately think about the stock market. Let’s take a step back.

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My oldest recently returned back to college having completed a summer job. Thanks to our “Golden College Fund” (our kids’ college savings is in physical gold; please see this 2014 Forbes article for details), our son in the fortunate position that he doesn’t have to pay off college debt with his earnings. If he did, paying off college debt – like any other debt – is a choice of whether one expects a higher rate of return with one’s investments (after tax) than if one were to pay off the debt. It’s also a choice of risk tolerance, as a debt-free person has much less to worry about.

Talking about worrying: the advantage a college kid without debt over just about any other adult has is that he or she has no obligations, notably also no family to feed. I allege that financial stress is foremost a function of expenses, not income.  As we grow older, we start piling on obligations: it starts with the indispensable mobile phone plan, might include that monthly car payment and possibly a mortgage. And if one is providing for a family, that too will take a good chunk out of the household income statement.

As such, for college students, life is comparatively simple. That said, it might be a worthy exercise for anyone in a more complex stage in their life to re-evaluate where they are. Most have “legacy” payments they make, but do you really still need that $80 a month cable TV subscription? Or, at the more expensive end of the spectrum, that vacation home that’s a money pit; should it be sold or possibly turned from an expense leader into a revenue center by making it available on Airbnb?

Have you ever noticed that if you go to a financial adviser, they’ll only recommend what they are licensed to recommend; or what their custodian can keep on their books? When it comes to investing, the first question you should ask yourself is not where to open a brokerage account, but what it is that you want to achieve. The brokerage account may merely be the means of achieving your goal.

Many say young investors can afford to invest more aggressively because they have more time to recover from market crashes; again, the emphasis is on stocks. I would like to phrase it differently: a young investor has a very high earnings potential relative to their current savings. Let’s say you make $50,000 coming out of college, with $5,000 in the bank. The way I like to look at it is that the $50,000 is a revenue stream you are getting from the investment you have made in yourself, one that’s likely to increase over time. It’s for that reason that you can be more aggressive with those $5,000. And that applies no matter what age you are: if you are an executive making hundreds of thousands, evaluate the odds of that income stream holding up, and put that into the context of your savings (which are hopefully higher at that stage in your life).

For a young person, it may be all but impossible to fill in a questionnaire about one’s target retirement age.  I gather it’s difficult even for many fifty-year-olds: sure, we all dream of retiring on the beach. But many of us – I include myself here – are not dreaming of retirement: we need to keep our brains active, and the last thing we want is to become couch potatoes. Relevant for any financial planning is that in the opinion of yours truly, income derived from one’s personal labor ought to be seen as a revenue stream just like any other, with probabilities assigned as to the future course of such revenue.

If along the way, you have invested in a vacation home that you are now renting out; that is an income stream as well (net of expenses, taxes, etc.).

If one reaches the point in one’s life where one no longer wants to or is no longer able to “have a job”, well, then that income stream is cut off. Although even there, with regard to financial planning, I would like to pose the question: how healthy are you? That is, could you go back to work if you wanted or needed to? In my opinion, one you don’t often hear from financial planners, one of the better pieces of retirement investment advices is to invest in your health. If you are healthy at age 65, you have the potential to keep that revenue stream going, even if you end up choosing not to. That, in turn, improves your risk tolerance.

The beauty of one’s personal earnings power is that one can control it far better than an investment one buys with the push of a button. When you buy that hot internet company, you have no control over management (with some firms there aren’t even voting rights associated). My personal view is that the riskier an investment, the more involved you want to be. For example, to make money in frontier markets, don’t be surprised if you lose your shirt if you give someone else your money to manage; a more profitable strategy may be to roll up your sleeves and get a job working there? No, it’s not unrealistic, especially not if you are young. Isn’t it all about “experiences” for the young generation? Well, here’s your chance!

Instead, your friendly financial planner will ask you about your risk/return profile. What the heck does that mean? We all know how much upside risk we can tolerate (an infinite amount?!), but who understands the abstract notion of downside risk? Investors start to appreciate these concepts as they gain experience; and “experience” means a series of setbacks, including possibly a job loss that gets one to re-evaluate those expectations of ever higher salaries.

The concept of risk goes far beyond the standard deviation of a

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