Does age matter in investing?

I came across this article on website motleyfool. It describes role of age in investing. Motleyfool reminds us that a few decades ago, it was exceptionally hard for younger people to invest.  However, the internet age has brought significantly lower trading costs. This means younger people now have the opportunity to invest relatively modest amounts. However, could this mean they are more susceptible to losses than their older peers? Does wisdom come with age when it comes to investing?

Experience: Perhaps the most important aspect of investing is experience. Ask any investor what has made them better and they will usually say it was mistakes made in the past. Even the very best investors have made mistakes in their early days of investing. For example, Warren Buffett bought a stake in a gas station and proceeded to work exceptionally hard for very little reward. He learnt from this that passive investing generally beats active investing. Similarly, investors often fail to consider aspects of a company’s balance sheet, cash flow and whether it offers good value for money. These things may sound basic to seasoned investors, but for beginners they are easy mistakes to make. And since younger investors will have less experience and less opportunity to have made such mistakes, they may find their returns are lower than when compared to their more experienced peers.

Age vs experience: However, there is a clear difference between age and experience. An investor can be younger and experienced, as well as older and inexperienced. As such, it is not the age of an investor which really matters. It is how experienced they are. For example, when all investors start to buy and sell shares, they are unlikely to have found their investment style. This is essentially a system which works for them and their risk profile. Often, it can take a number of years before a successful system which fits in with a person’s risk tolerance is found.

Opportunity for all Motleyfool concludes thatage should not be seen as a stumbling block for any investor. Younger people should feel confident in the knowledge that all investors have made mistakes, and experience will drive improvement. Similarly, for older investors it is never too late to start taking an active interest in retirement plans. Therefore, just as investment success is not linked to educational background, gender or any other aspect of an individual, age really is just a number when it comes to being a good investor.

Points to ponder: (source: masterinvest.com)

“I have a saying: There are no brave old people in finance. Because if you’re brave, you mostly get destroyed in your 30s and 40s. If you make it to your 50s and 60s and you’re still prospering, you have a very good sense of how to avoid problems and when to be conservative or aggressive with your investments.” Steve Schwarzman

“One bonus about this profession is you get better over time. Most professions, as you get older, you get out of the game. Take the example of competitive sports. If you are a figure skater or gymnast, after your teenage years you are out of the game. With investing, if you are doing it the right way, you get better over time. Your knowledge accumulates exponentially. When I look back at everything I have done, I would have done it all slightly differently, but that is because I am better at it today. So if you approach it in a fundamentally sound way, as you mature, you become better and better. That process and progression is like compounding money. In fact, you can compound knowledge faster than money. If you truly love this game, I would suggest that you don’t take short cuts. It might take longer but it is more rewarding.” Li Lu