The late John Bogle is rightly revered for many reasons. But one piece of advice that I suspect most advisors would choose to discard is his suggested asset allocation for retirees.

According to Bogle, the formula was simple. Take your age, subtract it from 100 and that’s the percentage you allocate to equities.

In a world with historically normal interest rates, in which most people live only to age 75, that idea might possess some merit. But today’s clients are living until age 90 and facing anemic interest rates, which means it’s a formula almost certain to leave clients blessed with long lives in penury.

Over the years, I’ve had the opportunity at conferences to ask many of America’s best money managers what they’d tell a 65-year-old about to retire with $2 million about asset allocation. Some of these investment managers have suggested an allocation of 80% or even 90% to equities.

Advisors in the audience are quick to note that top money managers enjoy several advantages most clients don’t. First, many have the ability to work well into their 70s. Second, equity market risk is no stranger to them—they’ve dealt with it their entire careers. Third, the last time they had a $2 million net worth was several decades ago.

It goes without saying that very affluent clients with recurring sources of income and no retirement plans on their horizons can be far more aggressive than most Americans. The rest of us need some source of stability and risk control in the portfolio. The question is how much?

Most advisors I speak with maintain that the standard 60-40 portfolio is still the best way to balance the twin threats of financial failure—market risk and the long-term erosion of purchasing power. But no single solution works for all clients.

Cautious advisors tend to attract conservative clients. In these cases, a 50-50 portfolio seems to work.

At the same time, advisors in areas where fast-rising affluence is pervasive tend to be more aggressive. Several advisors I know in the Seattle and San Francisco Bay areas recommend retired clients keep 75% or more of their assets in retirement.

First « 1 2 » Next