There are thousands of books, seminars, and graduate theses on asset allocation. While professionals, academics, and amateurs have myriad different and frequently competing views on asset allocation, various popular prescriptions are driven entirely by age. For example, the popular saying: Take 100 (or 120), subtract your age, and that’s the percentage you should have in stocks. Friends: Age is a factor, but by itself is not enough.

Is Age All That Matters?

If age were all that mattered, then two gentlemen aged 75 with similar-sized portfolios should have nearly the same asset allocations—always! If you’re a financial-services professional, maybe you like this idea. First, it’s less work for you—your client’s age becomes the singular driver, and that’s easy to figure out. Second, it provides you with cover. Clients can’t complain you steered them wrong on allocation because you followed a simplistic equation. Neat!
If you’ve read Bunk 3, you already sense the age factor alone is wrong. Our two hypothetical 75-year-olds, Jim and Bob, have age and portfolio size in common but little else. Maybe Jim is a widower with one son. Jim doesn’t care about maximizing his portfolio for his son. Jim’s not mean—his kid is super-successful and rich in his own right and doesn’t need the money. But Jim does need it to live on—anything left over is just gravy. Plus, Jim’s parents died at age 68 and 72. Jim’s not in failing health now, but he’s had two heart ...

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