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CNN Live Saturday

Interview With Lauren Young

Aired July 27, 2002 - 12:39   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RENAY SAN MIGUEL, CNN ANCHOR: A volatile stock market continues to make investors queasy. The Dow ended the week up 3 percent. The Nasdaq dropped 4. Individuals are eying the developments with much concern over their life savings, wondering whether to pull out or to sit tight.

The latest issue of "Smart Money" magazine offers some good advice. It's a big picture look at the role of the markets and personal retirement planning. And Lauren Young is a senior writer for "Smart Money." She joins us now from New York. Lauren, good to see you, thanks for coming in on a Saturday.

LAUREN YOUNG, SMART MONEY MAGAZINE: Hi, Renay.

SAN MIGUEL: Hey, there. Well, we're going to go decade by decade here, from the '20s to the '60s, for the advice you have on how to get back to the basics. Starting out with those starting out in their 20s, the advice here is to build assets, growth investing, stocks and think about goals. Now, the growth investing, you're talking about investing in the growth stocks, which are supposed to be those that are going to grow earnings and revenue much faster than the market, right?

YOUNG: That's right. You know, people are very, I guess, nervous about investing in stocks right now, but when you have a long- time horizon, it really works. The power of compounding is a beautiful thing. If you start out with $10,000 when you're 20, and it grows at 8 percent, when you are 30 years old, it's going to be $20,000, but when you're 60 years old, it's going to be more than $200,000, assuming that you do get that 8 percent return, and we're hoping you can get that, and you probably can.

SAN MIGUEL: So even though most of the growth stocks these days are not doing anywhere near what they were doing in the mid- to late- '90s, you would still say take a look at them?

YOUNG: Absolutely. Because history has shown us that while we have had a very, you know, a very deep correction and pretty much a crisis of confidence, markets change and it's very dynamic, and over the long haul stocks have been the best investment, even with this recent correction.

SAN MIGUEL: All right. Let's move on to advice for the 30- somethings out there. Max out your retirement savings. Define your goals. If you haven't done that by your 20s, you really need to be thinking about that, and then build the nest egg. Start thinking about the retirement at that point.

YOUNG: That's right. Goals are really important. You know, so many people invest and don't have any goals in mind. And when you're in your 30s, you are probably starting a family, you want to think, are you going to send your kids to college, how much do you need to save for that, how long is that from now? And if you're buying a home, you need to figure out if that's five years away or 10 years away. So you really need to have a goal in mind when you invest. Don't just throw money into the market blindly.

SAN MIGUEL: OK. We move on now to your mid-career, your 40s, and this is going to be of interest to me here. Full disclosure on that. Financial aid for college, if you have the kids starting to head toward that edge, tweak the growth portfolio, add bonds, which are, you know, obviously a little bit more stable. You don't get the return on stocks, but you have to diversify your assets that way, and retirement planning for life and work. What are we talking about here?

YOUNG: Well, you know, there's a little pretty simple formula about stocks. You do your age minus 100. So if you're 40 years old, you should have about 60 percent of your portfolio in stocks. Now, that other 40 percent, as I said, you want to start thinking about being a little more conservative, you know, just preserving a little bit of it, and I think one of the problems that we had is that people just threw so much money into equities, and now they're really hurting because they were not diversified. Diversification is key.

SAN MIGUEL: That's what they talk about when the financial planner will talk about asset allocation here, and you have to adjust that, though, for the certain times no matter what your long-term retirement goals are, right? I mean, if the markets are saying, really, you need to get into bonds more, you know, you should be able to make that adjustment, even with your long-term goals in mind.

YOUNG: Well, actually, you shouldn't really respond to the markets. If you have a good asset allocation plan, and on our Web site and all the financial Web sites, smartmoney.com or somewhere else, you can fill out an asset allocation work sheet, and it will give you a good idea of how much you should have. But diversification is really what's key. As long as you don't have all your eggs in one basket, you're going to be fine, because there's always something working. Right now, gold is working, real estate is working, so something is always working when something else isn't.

SAN MIGUEL: OK. We move on now to the earnings power, your 50s. Here we have bank peak earnings, post-retirement budget and building a side business. Let's start with that. What are you talking about there?

YOUNG: Well, you know, a lot of people are retiring now at age 60, 65. It's just not acceptable, especially when people like the pope are living to be well into their 90s. So you know, he's got a side business going, I'm sure. No, but what you want to think about is don't plan if you're going to continue to work after, you know, you do retire from your company or whatever you're doing, what your next step is going to be. Don't plan that at 65, get started. Think about it in your 50s. What do you want to be doing when you're entering retirement? If you're going to consult, for example, get the business started now.

SAN MIGUEL: OK. And then we move on, winding down now to your 60s. Here, the last decade we will be talking about. Invest for growth and income. Weigh pension options, and finalize your post- retirement plans. The idea here is that all that you have been saving for since the 20s, now you're going to start, you know, that's going to be your -- take care of your living expenses. You need to help to manage for that. You say invest for income, right?

YOUNG: That's right, Renay. And actually, it's really important at this stage in your life to figure out, you know, plan for the next generation. Talk to your wife or your spouse about where your money is and who all the important players are and how to access it, because people don't think about wills and think about the future, and it is really important that your family knows where everything is. So that, you know, in the event that things change, people are ready and able to take over the house pocketbook.

SAN MIGUEL: We have about 30 seconds left here. To try to get folks away from thinking about panic situation, as we were talking about. It's one thing to adjust asset allocation, but it's another thing to just get rid of all the equities because of all the headlines that you are seeing in the market. This is the kind of a danger that investors today have to kind of keep in mind?

YOUNG: Absolutely. And you know, right now is actually the worst possible time to sell. And, you know, they have done tons of studies on this. People always sell -- it's always darkest before the dawn. So it's actually a good time to buy. But don't throw all your money into the market at once. You want to do it very slowly, if you're on the sidelines and thinking about investing. You know, put maybe $1,000 a month, or $100 a month, whatever it is. Just don't do it all. But if you're in for the long haul, you will be OK. I can guarantee you that. At "Smart Money," we will promise you that.

SAN MIGUEL: And that is what we've been hearing all the time here, even through the go-go '90s here, don't try to time the markets, because you will lose that battle.

Lauren Young, a senior writer with "Smart Money," thanks for joining us today. We appreciate your time.

YOUNG: Thank you, Renay.

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