Oct. 2, 2014

Investing over the Life Cycle: One Size Doesn't Fit All

Richmond, Va.

The Federal Reserve Bank of Richmond's October Economic Brief questions the conventional wisdom that young people should invest more heavily in risky assets.

Financial advisers commonly recommend this strategy because young investors can expect that long-run returns on risky assets typically will outweigh short-term losses. However, the Fed's Survey of Consumer Finances shows that young people generally do not follow this advice. Instead, they invest little or nothing in risky assets initially and increase their holdings gradually as they approach retirement. Economists find that accounting for other risks that young people face can help explain this behavior.

Read the full Economic Brief.

Economic Briefs are web-exclusive essays on current economic issues and trends. They are based on the ongoing research and published work of the Richmond Fed's staff economists. Past essays are available online at http://www.richmondfed.org/publications/research/index.cfm. To receive an email notification when a new essay is posted, sign up at http://www.richmondfed.org/email_updates/index.cfm.

As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District — including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia — to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.

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