When You Reach This Age, Your Portfolio Should Focus On Aggressive Growth

Aggressive growth in a stock portfolio can be vital for hitting retirement goals or even building generational wealth. However, this approach is not for everyone. High-risk portfolios carry a larger emphasis on stocks with varying — often higher — risk levels than assets like bonds or cash. Because of this, they are more at risk of experiencing market fluctuations that can take anywhere from months to years to recover from, with investors closer to retirement age often less likely to fully recover from these types of losses. With that in mind, according to GOBankingRates, individuals between 20 and 30 years old are in the best position to leverage aggressive growth in their investment portfolios.

A person's 20s are often considered the best time to begin investing, as this period provides a long horizon toward retirement — making it easier to eventually recover from any losses or market downturns. Plus, when paired with consistent contributions and other benefits, such as employer contributions, it becomes much more feasible to hit various financial goals when starting young. In fact, not investing by this age can be costly. Some experts even believe that for every 10 years someone waits to begin investing for retirement, they will likely have to contribute two to three times more money per month in order to make up for lost time.

Investment companies can make managing a growth portfolio easier by providing target date funds, which offer a mix of assets and even shift their allocation from aggressive to conservative automatically as individuals reach retirement age. However, for investors looking to avoid the higher fees associated with many financial services, there is also a simple age rule that can help determine stock allocation. Known as the 100 minus age rule, investors can subtract their age from 100 to determine the percentage of stocks they should keep in their portfolio. For example, a 25-year-old should have 75% of their portfolio in stocks, with bonds and cash making up the remaining amount.

Keeping bonds and cash can be important in a growth portfolio. Even though 20- to 30-year-olds have more time to recover from downturns, bonds can help reduce the magnitude of losses during a bear market since they tend to perform counter to stocks. Meanwhile, keeping cash provides immediate liquidity, which can help investors cover short term needs without being forced to sell stocks at a loss. That said, GOBankingRates recommends that those between 20 and 30 years old should allocate 90 to 100% of their portfolio to stocks, with bonds and cash making up just 10%. Ultimately the goal of an aggressive portfolio is to enable as much growth as possible before reaching the age where you should switch to a conservative retirement portfolio, so find the approach that works best for you.