Discontent with equity investing for retirement is metastasizing from Main Street to the ivory towers inhabited by serious financial minds. In the past year, a growing chorus of academics and other thought leaders have started questioning what once were bedrock assumptions about equity allocations for retirees.

It may be purely coincidental but the rising aversion to equities comes after a ten-year bear market that has witnessed two of the four 50%-plus corrections in the last century. But consequential thinkers like Barra founder Andrew Rudd and Bryce Harlow, who heads the Putnam Institute, are reaching very different conclusions from the widely accepted view among investment professionals that a 50% to 60% allocation to equities, or even higher, is sensible for most retirees.

Both Rudd and Harlow are serious thinkers with doctoral degrees from top-flight universities, the University of California at Berkeley and the University of Texas, respectively, and spent their careers straddling the worlds of real asset management and academia. As a result, they understand what's taking place on the frontlines of investment theory and what's working in the real world.

In the wake of two once-in-a-lifetime bear markets compressed into a single decade, one can certainly make the case that a reappraisal of conventional wisdom is in order. Last summer I interviewed Harlow, who said that when he began his research, he thought the traditional pension allocation of 60% equities and 40% fixed income that performs well under many scenarios would emerge as a near-optimal solution.

What Harlow discovered is what many folks who have retired in the last decade have learned the hard way. One of the greatest-and, until recently, least appreciated-risks for a retiree is the sequence-of-returns risk. People who retired in years like 1893, 1929, 1965, 2000 and 2007 with much of their net worth in equities probably wish they had stayed on the job.

Harlow told me that he assumed someone could enter retirement with a traditional 60%-40% portfolio and gradually "roll down" her equity exposure over time. That works as long as the person isn't slammed with a nasty bear market at the onset of retirement. But people are not pension funds or endowments and may not have the time horizons or risk tolerance levels those institutions do.

Harlow's conclusion that retirees should invest 5% to 25% of their assets in equities if they are concerned about outliving their assets pours a bucket of cold water on mainstream financial planning. Significantly, allocations in the 10% to 12% area are considered optimal. For his part, Rudd agrees that such weightings are appropriate for all but the affluent.

Why so conservative? Harlow explains that once a retiree starts drawing down assets, the glidepath becomes path dependent.

One might suspect that his statistical findings are heavily influenced by the dismal returns from equities over the last decade. Au contraire, he responds. Harlow says one derives nearly identical results whether one runs Monte Carlo simulations using 30-year returns or 80-year results.

Of course, the sequential risk argument can be flipped on its head. What if someone retired in 1919, or 1948 or 1982 and went to 12% equities?

Moreover, some balanced funds have performed surprisingly over the last ten years, which earned the sobriquet "the Lost Decade." For example, the Vanguard Wellington Fund returned 5.91% annually for the ten years ending on August 31.

Seven years ago, I had the opportunity to see the late Peter Bernstein speak to a group of financial advisors at a JP Morgan Fleming conference outside of Chicago. Bernstein, who led a remarkable life as an asset manager, financial advisor, author and editor, described himself as a "social worker to the rich."

After stints in the Office of Strategic Services (the predecessor to the CIA), at Williams College teaching economics and in commercial banking, he became a financial advisor and money manager in 1951, taking over his late father's firm, Bernstein-MacCauley. It was a period with some interesting parallels to the present.

The post-World War II environment was characterized by high unemployment as the economy struggled to absorb millions of decommissioned soldiers returning home (the G.I. Bill helped cushion the blow). Partisan bickering rivaled the present decibel level and voters relished tossing out incumbents in both parties during the late 1940s.

Bernstein quickly discovered that many of the firm's wealthy clients owned equities for the dividends, not because they expected any significant price appreciation. For several decades in the wake of the crash and the Great Depression, stock yields topped bonds.

It was during a powerful rally in 1958 when equity yields finally slipped below fixed-income securities-and stayed there for 50 years. During the go-go years of the 1960s investors became infatuated with growth stocks. Wall Street Week host Louis Rukeyser liked to cite the remark of his father, Merryle, a famous financial writer, that it was late in life before he realized a "stock that paid a good dividend could also go up."

Interest in dividends continued to wane in the stagflation-prone 1970s, when bond yields soared and hard assets appreciated. The lone bright spot of equities were small-cap stocks, which enjoyed their own private bull market as blue chip shares treaded water. Companies themselves accorded little respect to dividends, and payout ratios for the Standard & Poor's 500 index fell from 60% in the early 1970s to 30% by 1999. Soaring equity prices, of course, also contributed to lower yields.

Dan Fuss, vice chairman of Loomis Sayles and co-manager of several of its bond funds, considers it excessive when the conversation urges investors to avoid equities for all but a small sliver of their portfolios. This is one of those rare times since 1958-the other being early 2009-when many stocks are yielding more than bonds.

One can even find individual companies with long histories of increasing dividends and virtually identical stock and bond yields. "All it takes is one dividend increase and the company's stock will yield more than its bonds," Fuss notes. "There are several good strong companies with little debt, strong market shares, that yield 3% or 4% that would normally sell at yields of closer to 1%."

Still, Fuss says there is "no one-size-fits-all" solution for retirees. He has a neighbor in his mid-80s who is almost "all equities," and Fuss suggested he might want to dial it back somewhat. Conversely, going down to 10% equities at this point in time makes little sense unless "you have a very short time horizon," he says. "The problem today is there are more bargains in [stocks] that grow dividends than there are in long-term bonds."

There is another major problem with allocating 75% to 90% of a retiree's assets to bonds. Many like Fuss believe we are entering the embryonic stages of what could well be a secular, multi-decade bear market for fixed-income securities. How severe that bear market will be is the big wild card.

But if you had asked a retiree who bought 30-year AT&T bonds in 1964 how they felt in 1980 when those securities were trading below 50 cents on the dollar, their answer probably would not be very different from a person who retired in early 2000 on the strength of their Cisco and Lucent shares.

Tellingly, Fuss adds that the Loomis Sayles Strategic Income Fund, a balanced fund focused on income with a mandate to invest up to 35% of its assets in equities, began increasing its allocation to the asset class from 3%. As of mid-September, stocks represented 12% to 13% of assets and Fuss says it is possible it might reach the 35% limit.

For advisors, the post-Lehman bankruptcy environment remains challenging. Depending on the client, more than a few have scaled back their allocations to the 40% to 55% area, often substituting commodities rather than fixed-income securities.

With Europe tottering on the verge of a continentwide recession and the rest of the globe experiencing a slowdown, commodities are facing short-term headwinds. Even if the boom in emerging markets brightens the outlook for metals and agricultural goods later in the decade, the long-term historical performance of commodities is hardly sterling.

With so much uncertainty, the smartest decision may simply be broad diversification. Financial Advantage president J. Michael Martin, whose writing has often graced these pages, may not be a perma-bear, but he's certainly no starry-eyed bull. Clients in his firm's accumulation and core portfolios currently are targeted at 50% and 30% equities, respectively, and that's after a major cutback in stocks on August 1. Both portfolios have 10% of assets in gold.

"Long term, I think that owning well-managed businesses is by far the best way to invest because, unlike bonds, businesses can adapt to all the vicissitudes of economic change and government policies," Martin says. "But since stock prices change dramatically, we have to pay close attention to what we pay for businesses."