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Age really shouldn't be the determining factor in asset allocation.
Age, or rather time until retirement, does play a role. If someone works and continues to have income coming in aside from their investments then they are at a lower risk than someone who has left work, has no other income than their own investments. If someone has a guaranteed pension then they can take on more risk. So it all depends on a few factors, with age and time until the monies are needed 2 of those factors.
The good time to have a lower equity % is right at the start of or early in retirement in case of a market that drops. The whole basis for an inverse guide path is starting out lower and building up % of equity allocation a bit each year to push the risk out. Btw, that doesn't mean someone spent 40 years working before retirement with only a 40% equity allocation the whole way through--adopting a lower allocation is a specific strategy commonly used as one enters retirement. And lower doesn't automatically mean low. The lowest starting allocation (year 1) I've seen suggested is 35% but generally more like 40 - 45%, give or take.
Age, or rather time until retirement, does play a role. If someone works and continues to have income coming in aside from their investments then they are at a lower risk than someone who has left work, has no other income than their own investments. If someone has a guaranteed pension then they can take on more risk. So it all depends on a few factors, with age and time until the monies are needed 2 of those factors.
The good time to have a lower equity % is right at the start of or early in retirement in case of a market that drops. The whole basis for an inverse guide path is starting out lower and building up % of equity allocation a bit each year to push the risk out. Btw, that doesn't mean someone spent 40 years working before retirement with only a 40% equity allocation the whole way through--adopting a lower allocation is a specific strategy commonly used as one enters retirement. And lower doesn't automatically mean low. The lowest starting allocation (year 1) I've seen suggested is 35% but generally more like 40 - 45%, give or take.
Age is a factor , but by itself is not enough. Time horizon is most important, followed by what your return expectations are and then obviously your cash flow needs. They all factor in. Reducing asset allocation decisions to the age of the investor alone can be very dangerous long term. Failing to plan for enough growth cover inflation can really hurt someone.
I guess I'm just dubious of the popular narrative of "you must get more conservative as you get older" or the famous "you should have your bond% the same as your age".
who your investing for in retirement is at the top of the list .
if it is legacy money than you can be 100% equities if you wanted , age is no factor . if pension and ss covers the bills , you never left the accumulation stage .
if it is for generating your own income forever ,that is another story .
if you want a combo of the above you may have to try another allocation .
how much do you need to draw is 2nd .if all i wanted was 2% inflation adjusted i don't even need equities .
however if i wanted 4% i have to use equities and whether i have a low pucker factor or not does not change that requirement if i want that 4% or risks of failure go way up . the only time age matters is really just based on how many years left you have . the less years you have the less you NEED allocated to equities to keep that high success rate ..
what success rate do you want to chance ? that is another top factor . 90% is considered the min but , hey , if you want to chance less you can go with less equities .
as you see age is a tiny tiny part . your retirement situation is going to dictate what you either need to do or if you have choices , may want to do .
Last edited by mathjak107; 01-07-2018 at 04:15 AM..
I'm just going to keep buying quality companies and trading them for a profit. Don't be afraid to take a 10% run up and then back to cash until you buy the next one.
well then the reverse is you missed so much in gains that even if we fell a whole bunch and you put that money to work you would likely still be behind just letting it stay invested and stop trying to outsmart the markets .
but you will learn . most of us have been there and learned our lesson . speculating is a poor way to grow your money if you are in your accumulation stage . it is okay for fun , but only after your have a portfolio in place acting as a foundation , and noooo gov't bonds is not a portfolio for growing money .
I'm at this allocation for only the past 2 months. I'm more than willing to trade some gains at this stage - dow 25K - to protect against a big 2008 style drop.
I know what I'm doing. I'm 48 and have no mortgage, no car payments, have kept costs down for 25 years. That's half the battle - it isn't just what you make on your investments.
why should we have a 2008 style collapse ? that happens once every 30 years .
i would disagree about "it isn't what you make on your investments "
you can save all the pennies you want but they will always be pennies . in fact less with inflation so yes IT IS about your investing unless you are saving loads of dollars .
never forget cutting costs only looks like more income until it's not . then you learn cutting expenses have a bottom after which they can no longer offset rising costs . so growing your money and income is key and very important too . you need to do both but don't for one second under estimate the investing portion .
I'm at this allocation for only the past 2 months. I'm more than willing to trade some gains at this stage - dow 25K - to protect against a big 2008 style drop.
One thing 2008 taught us all was that black swan events seem to be more likely than was once thought.
One thing to consider is a different type of black swan event: What if we have a 20 or 30 year period with very little real economic growth? Such a thing was once considered unthinkable, but now some economists are saying it the probability of it happening this century is far greater than originally thought (although still unlikely).
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