The Aleph Blog » Blog Archive » Avoid Selling Stocks When You Are Old, Maybe?

Avoid Selling Stocks When You Are Old, Maybe?

The Wall Street Journal recent had an article, What You Know About Retirement Investing Is Wrong, where it recommended that elderly people invest more in stocks as they get older.  I think the advice is wrong, unless you understand it this way:

Stocks are longer assets than bonds.  Use your bonds to pay for your spending in the early years of your retirement, and don’t sell your stocks.  Once you run out of bonds, start selling your stocks, if the dividend income isn’t enough to live on.

But even this idea is weak.  If a person followed this in 1997 with a 10-year horizon, their stocks would be worth less in 2008-9, even if they rocket back out to 2014.

Asset allocation is more difficult than it is in the textbooks, or in the syllabuses for the CFA Institute or for CFPs.  It is a blend of two things — when does the investor need the money, and what asset classes offer decent risk adjusted returns looking forward?

If long-dated, volatile asset classes offer great returns looking forward, but the client has a short time horizon, he can’t invest much in risk assets.

If long-dated, volatile asset classes offer great returns looking forward, but the client has a long time horizon, he can invest a lot in risk assets.

If long-dated, volatile asset classes offer poor returns looking forward, but the client has a short time horizon, he should stay in safe assets.

If long-dated, volatile asset classes offer poor returns looking forward, but the client has a long time horizon, he should stay in safe assets.

Stocks do tend to do well over the long run, but few of us live in environments where that growth is uniform.  The stock market zigs, zags, booms, and busts.  What if it busts when your are old?

Personally, I think it is wiser to maintain a more balanced investment posture in retirement, because the future is not predictable.






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Bonds, Pensions, Personal Finance, Portfolio Management, public policy | RSS 2.0 |

One Response to Avoid Selling Stocks When You Are Old, Maybe?

  1. […] On the need for portfolio balance in retirement.  (Aleph Blog) […]

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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