Asset allocation by health?

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Asset allocation by health?

Postby InvestorNewb » Mon Jul 15, 2013 8:24 pm

Hello,

If someone is healthy for their age, should they forget the "age in bonds" (or similar) rules?

Suppose you are 40 but have the health of a 25 year old - you eat well, don't smoke, can run long distances, and are around the same weight or less than you were at 25. Should that play a factor in determining how much risk you take on?

It seems to me that people who fall into this category will presumably live longer and more productive lives than those who don't. In theory, this should allow someone to have a longer working career, with less odds of having to leave the workforce early due to illness.

Also: Due to advances in technology, you sometimes hear sayings like "40 is the new 30", "50 is the new 40", etc. Surely this must also be taken into account when determining risk.
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Re: Asset allocation by health?

Postby chaz » Mon Jul 15, 2013 8:39 pm

Set your asset allocation that you are comfortable with. You know what level of risk that you can live with.

Good luck.
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Re: Asset allocation by health?

Postby joe8d » Mon Jul 15, 2013 8:44 pm

A person health status can turn on a dime.i've seen many instances of that. Also, your employer has a lot more control on how long you work then you do.
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Re: Asset allocation by health?

Postby Billyboy » Mon Jul 15, 2013 11:39 pm

joe8d wrote:A person's health status can turn on a dime.i've seen many instances of that. Also, your employer has a lot more control on how long you work then you do.

+1. My health changed instantly through the mal-practice of a neurosurgeon, during a very basic procedure.
I had made my number; now it doesn't feel like such a big deal, can't walk or use my left arm, hand or fingers anymore. :annoyed
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Re: Asset allocation by health?

Postby just_trailing » Tue Jul 16, 2013 12:15 am

Good thought. But current medical science knows so little about human body, there is no way to define good health. There are very few things like smoking that clearly indicate a health risk. Marathon runners die of cancer early. CEO's in 40s with a great family die of heart failure. I know some junk lifestyle people living into their 80s 90s.
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Re: Asset allocation by health?

Postby Call_Me_Op » Tue Jul 16, 2013 5:20 am

InvestorNewb wrote:Hello,

If someone is healthy for their age, should they forget the "age in bonds" (or similar) rules?

Suppose you are 40 but have the health of a 25 year old - you eat well, don't smoke, can run long distances, and are around the same weight or less than you were at 25. Should that play a factor in determining how much risk you take on?

It seems to me that people who fall into this category will presumably live longer and more productive lives than those who don't. In theory, this should allow someone to have a longer working career, with less odds of having to leave the workforce early due to illness.

Also: Due to advances in technology, you sometimes hear sayings like "40 is the new 30", "50 is the new 40", etc. Surely this must also be taken into account when determining risk.


I don't buy that advances in medical technology are making people healthier, in aggregate. Our ancestors worked harder than we did and ate less processed foods, and generally were in better physical condition at a particular age. Do you think that drugs really make people healthier? What has improved greatly is infant mortality and improved public sanitation, and these largely explain improvements in life expectancy. In any case, you can be sickly at 40 and live until 90 - or be a spry 40 and die of a heart attack at 45. So no, I do not think you are onto something. Your AA should reflect the fact that the unexpected can happen.
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Re: Asset allocation by health?

Postby EternalOptimist » Tue Jul 16, 2013 7:09 am

Look at Steve Jobs. I don't think this can be quantified, it's a very personal decision.
"When nothing goes right....go left"
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Re: Asset allocation by health?

Postby RobInCT » Tue Jul 16, 2013 8:31 am

InvestorNewb wrote:Hello,

If someone is healthy for their age, should they forget the "age in bonds" (or similar) rules?

Suppose you are 40 but have the health of a 25 year old - you eat well, don't smoke, can run long distances, and are around the same weight or less than you were at 25. Should that play a factor in determining how much risk you take on?

That depends. If you're 40 and feel 25, does that mean you plan to retire at 80 instead of 65 and put off collecting social security until you're 85 instead of 70? And are sure you can pull it off? If so, then you can have a more aggressive asset allocation.

I think you'll find that most people around here, even people with average or sub-average health for their age, plan for retirement with the assumption that they may well need funds to support themselves well into their 90s. Even if the average life expectancy is around 78, it would be quite foolish for anyone not already diagnosed with a terminal illness to budget their funds around the assumption that they won't need money past that age. Perhaps excellent health gives some people better odds of making it to 95+, but just about everyone who is being responsible is already taking into account the chance that they might live that long, so I don't see how excellent health would make a difference unless someone thinks his/her excellent health means that instead of planning to live to 95+, s/he needs to plan to live to 110+. That strikes me as actuarially improbable, no matter how many miles one runs per day.

In other words, I think responsible asset allocation already presumes one will live a very long time, so I don't see how excellent health should affect it one way or the other.
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Re: Asset allocation by health?

Postby nisiprius » Tue Jul 16, 2013 9:28 am

It is possible to predict that one's life expectancy is shorter than average--if one is actually diagnosed with having a serious medical problem. It is rarely possible to predict that one's life expectancy is longer than average. I thought it would be easy to Google this once but found it surprisingly difficult to find anything; nevertheless, despite the casual talk about "good genes" and the folk belief in "long-lived families," the only things I was able to find suggest that the correlations between parental and child longevity are only around 0.30 or so.

I'm afraid that in many areas of investing, there is a sort of rhetorical drift from hypothetical explorations of "if only we could predict X, then we would have a logical basis on which to invest in Y" to statements that give the impression that we can and should try to to predict X and use our predictions to optimize Y.

I think there are two popular pieces of "longevity folklore," popular because we would really like to believe them. One is that we can be confident of a long life if we eat right, work out, and our parents were long-lived. The other is that medical advances have created huge and rapid improvements in longevity. (In reality, life expectancy at age 65 has increased at about the rate of one year per decade, i.e. retirees live about five years longer than they did fifty years ago. Now, I sure ain't knockin' that, but it's not the sort of big dramatic change that would justify e.g. the huge increases in recommended stock allocation that have occurred over that same time period...)
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Asset allocation by health?

Postby YDNAL » Tue Jul 16, 2013 9:51 am

InvestorNewb wrote:Asset allocation by health?

Suppose you are 40 but have the health of a 25 year old - you eat well, don't smoke, can run long distances, and are around the same weight or less than you were at 25. Should that play a factor in determining how much risk you take on?

What about considering the potential to get hit by a truck ? :D
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Seriously, longevity is unknown mostly except the other way... as with terminal diagnosis (or such).
  • Longevity, though, should be just another factor (or metric) to use in determining how long one should plan and set one's goals.
  • Are you considering more risk because of what you write in the OP or for some other unwritten reason ?
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