Do I need to become more conservative as I age

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caseycup
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Do I need to become more conservative as I age

Post by caseycup » Mon Sep 23, 2019 10:59 am

I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.

Kent Coffey

RadAudit
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Re: Do I need to become more conservative as I age

Post by RadAudit » Mon Sep 23, 2019 11:06 am

caseycup wrote:
Mon Sep 23, 2019 10:59 am
Does that apply to me.
Only if you want it to. Of course, all things considered - and I don't know the specifics about your situation - that's the way to bet.

More detailed replies may be forthcoming if you provided information in this format. viewtopic.php?f=1&t=6212
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dbr
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Re: Do I need to become more conservative as I age

Post by dbr » Mon Sep 23, 2019 11:08 am

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.

Kent Coffey
I think the best way to assess the risk you should take in investing is to think through your need, ability, and willingness to take risk. For many people as they age their need to take risk to earn larger returns is less, their ability to take risk by replacing investment losses with work, saving, and adjusting is less, their psychological tolerance for investment set-backs is less. All of that adds up to most people choosing to be more conservative as they age. But risk is a personal issue involving objectives, circumstances, and preferences.

In short, "need to" is a concept that does not apply and a person would want to think through their personal situation.

livesoft
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Re: Do I need to become more conservative as I age

Post by livesoft » Mon Sep 23, 2019 11:17 am

We've stayed the same AA for many years. As one gets older there is less longevity risk and one's portfolio should have grown as well. It can become more likely that one will leave money behind and the term "legacy" is used for that.

I guess if one is truly using up their portfolio and running it down to zero value, then maybe one should get more conservative as they age.

But "need to", I don't think so.
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Re: Do I need to become more conservative as I age

Post by Tyler Aspect » Mon Sep 23, 2019 12:57 pm

The typical asset allocation for a retired investor could vary between 60% stock / 40% bond to 40% stock / 60% bond. Each individual investor could have even wider variations.
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Horton
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Re: Do I need to become more conservative as I age

Post by Horton » Mon Sep 23, 2019 1:09 pm

If you are going to work until 70 you get the advantage of allowing both your Social Security benefit and your account balances to grow until then. Have you run an estimate of your Social Security? Do you have a pension? You may find that your basic living expenses are mostly covered, which allows you to maintain a more aggressive asset allocation.
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TN_Boy
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Re: Do I need to become more conservative as I age

Post by TN_Boy » Mon Sep 23, 2019 2:42 pm

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.

Kent Coffey
More specifics on your financial situation might help the answers.

That said, do understand that while you PLAN on working until 70, things could play out differently.

A health condition or some other life event might force you into stopping work well before 70. If that happened, and the stock market took a 50% hit, would you be okay? It's a lot easier to not worry about money when you have a decent salary coming in. When you don't, your investments become more interesting.

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Re: Do I need to become more conservative as I age

Post by retiredjg » Mon Sep 23, 2019 3:00 pm

caseycup wrote:
Mon Sep 23, 2019 10:59 am
Does that apply to me.
Maybe. Maybe not.

If you have more money than you'll ever need it may not apply to you. If you actually get to work until 70, it may not apply to you. There are probably other reasons too.

My question is why take risk you don't need?

Consider that it might be reasonable to dial it back some because some people find themselves retired earlier than they expected due to unexpected factors.

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Re: Do I need to become more conservative as I age

Post by bertilak » Mon Sep 23, 2019 3:25 pm

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.

Kent Coffey
One of your most valuable assets is your "human capital." This represents your potential earnings. As you age you have fewer years left to accumulate earnings. You also, probably, have less of an ability to generate earnings. Both factors decrease your human capital and therefore increase your risk (of not having enough money) so it is a good idea to de-risk in other areas. Primarily, that would be in investments.

If you have a large enough nest egg, you are at little risk and may not want or need to de-risk. You can be investing for posterity as opposed to financing your old age.

So, as in many things, it depends.
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JoeRetire
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Re: Do I need to become more conservative as I age

Post by JoeRetire » Mon Sep 23, 2019 3:34 pm

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70.
Good for you! It's nice to hear someone who enjoys their work.
I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.
While many recommend that you become more conservative as you have fewer years to recover from a financial downturn, you don't need to do anything you don't want to do. You've been through enough downturns to understand what could happen, and it obviously doesn't worry you.

It's your money, and your risk (and perhaps your partner's risk) to take.
Don't be a lemming.

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Re: Do I need to become more conservative as I age

Post by cherijoh » Mon Sep 23, 2019 4:02 pm

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.

Kent Coffey
Have you ever been unemployed during any of those economic downturns? Based on my own experience, that makes a huge difference. After experiencing litle income coming in while stocks were tanking during the Great Recession, I made sure that I derisked my portfolio to 60/40 before I retired last year. I didn't need to take the risk, nor did I have the appetite for it.

As others pointed out, you may not be in control of when you retire and if the decision is driven by your employer (rather than ill health) you need to be prepared for a double whammy of being laid off just when the market is doing poorly.

Dandy
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Re: Do I need to become more conservative as I age

Post by Dandy » Mon Sep 23, 2019 4:38 pm

Age usually goes along with declining human capital. If that is the case there are usually fewer earning/contribution years and therefore lower ability to save your way out of a significant asset decline. Also, it seems to be the trend that more and more people are retired earlier than they planned.

So, for those later in their career, especially if they are at or near their "number" should consider a moderate risk portfolio. The NEED for higher risk is not always there and the risk is actually greater than most realize because of lower human capital and the nearness of withdrawing rather than earning/contributing.

People who have been comfortable with higher risk and have weathered prior downturns often don't fully account for the change age and retirement have on their retirement funding risk. A record bull market only adds to the comfort.

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Re: Do I need to become more conservative as I age

Post by usagi » Mon Sep 23, 2019 9:00 pm

Since you plan to work until 70 and if you feel your job prospects will allow you to continue to work then here is my suggestion:

Look at your expenses and come up with a concrete bare bones amount of income you need, then come up with the number it would take for you to be comfortable, then come up with the number that would be a high end lifestyle. Now get an estimate of your SS benefits. Assume you converted your portfolio to all equities and then take 1.9% of it. Add that to your SS benefits and compare it to your 3 expense numbers.

If you can meet your bare bones budget with SS + 1.9% of your portfolio yield you can in theory take all the risk you wish, you may not want to, it may be a decision you will regret but it very doable.

If you can meet your comfortable budget with SS + 1.9% of your portfolio then do what you want, you are essentially bullet proof and likely will not be disappointed. And the odds are, at some point you will likely simply drift into being able to afford your high end lifestyle due to the power of equities over debentures.

Cheers.

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Re: Do I need to become more conservative as I age

Post by willthrill81 » Mon Sep 23, 2019 9:30 pm

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.
This is an extremely personal decision, and much of it hinges on what risks you are most concerned about and what you want to achieve.

What are your goals? Which are more (less) important to you?

What is your current asset allocation?
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Re: Do I need to become more conservative as I age

Post by ivk5 » Mon Sep 23, 2019 9:53 pm

As others have pointed out, it’s your decision but as time passes you have less time and human capital on your side in the event of a downturn.

I would frame this in more explicit risk terms. On the side of market risk, the risk of short to intermediate term volatility has not decreased, but you have lost part of two traditional risk treatment (time = investment horizon, which gradually becomes shorter; human capital = ability to compensate with future contributions declining). So you want to think about whether to offset that with alternate risk treatment, or whether to actually accept an increase in residual risk over time.

And just as residual market risk is actually increasing, the “need” to accept market risk as the price of mitigating other risks falls. Inflation risk declines somewhat with declining horizon. Longevity risk too; while your overall life expectancy increases gradually, expected funding needs from your portfolio decline with each year that you fund from earnings rather than decumulation.

Finally as noted if you’re far enough over the line that there is little doubt you’ll be able to find future needs regardless, the shifting risk equation may matter little to you.

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celia
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Re: Do I need to become more conservative as I age

Post by celia » Mon Sep 23, 2019 9:57 pm

I generally agree with usage (above). If you have enough income in retirement (SS, pension) to cover most of your expenses and a big enough portfolio to cover the rest for 30+ years, you can take extra risk.

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Re: Do I need to become more conservative as I age

Post by MathIsMyWayr » Mon Sep 23, 2019 10:12 pm

If you have a large fixed income (SS, pension, annuities) compared to your expenses (needs and wants), and your portfolio is large and adequately diversified, the standard "more conservative with age" advice does not apply. As a matter of fact, one size does not fit all in the majority of personal finance. All these withdrawal methods are only for "little people." Any way, this is my take. For example, if you need/want $175k during retirement with a fixed income of $150k and a portfolio of $7,500k, you don't belong to the "little people."

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Re: Do I need to become more conservative as I age

Post by retiredflyboy » Tue Sep 24, 2019 10:51 pm

If you have won the game, don’t risk loosing it.
Facts are stubborn things. Everything works until it doesn’t.

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Re: Do I need to become more conservative as I age

Post by frcabot » Tue Sep 24, 2019 11:03 pm

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.

Kent Coffey
It depends on how much risk you can tolerate based on your individual circumstances. How large is your portfolio? Is there a chance you lose your job? Is there a chance you become disabled? Are you comfortable losing 50% of your portfolio if you were to lose your job or become disabled?

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Re: Do I need to become more conservative as I age

Post by rascott » Tue Sep 24, 2019 11:09 pm

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.

Kent Coffey

Tough to say. Depends upon how much you have vs what you must have.

I have a 96 yr old grandfather who has been retired for over 40 years.... lived modestly through life and had a nice pension. But beyond his pension he's been almost all equities to this day. You can guess what that's built up to. This is a guy that was nearly 80 and went to his broker and wanted to buy into Google when it went to IPO. His broker tried to talk him out of it as it was too risky, he did it anyway. Then bought boat loads of bank preferreds in 2008/9. I asked him why at the time... he said he was looking through the paper and seeing preferred stock in small banks that were yielding 30%+.... so why not take a shot?

Sometimes having more than you need can allow you to see very clearly.

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Re: Do I need to become more conservative as I age

Post by Valuethinker » Wed Sep 25, 2019 4:09 am

caseycup wrote:
Mon Sep 23, 2019 10:59 am
I am 60 and like what I do, so I don't plan to retire until 70. I have always been somewhat aggressive as an investor and in no economic downturn have I worried about the money or my investment philosophy. I have been reading about the need to become more conservative as I age. Does that apply to me.

Kent Coffey
1. health & or employer issues can abort plans to work longer. Most of us do not control our exit date - my father was within 18 months of his when he was in effect fired (not for performance reasons - the company was changing and he was of the old guard, so they got rid of him) - financially he was fine but personally it really hurt him.

2. what happens if we have a long term bear market such as 1968-1980? Japan it has been nearly 3 decades.

If you are sure you can control working until 70 and that you can last out 2 then you are fine with a full equity portfolio (100%).

Factors like what other pension arrangements you have, spouse etc, make a significant difference.

bltn
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Re: Do I need to become more conservative as I age

Post by bltn » Wed Sep 25, 2019 5:04 am

One factor that has been mentioned by some of the long time retired members of this forum is spending flexibility. If your nest egg at current market levels supports your comfortable spending level in retirement with a 3-4% withdrawal rate then continue what your doing. When the market corrects down 30%, can you cut your spending 20%, assuming you have 70% in equities?
Flexibility in spending during retirement is one of the concepts I ve gotten from the posts of Taylor on this forum.

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Re: Do I need to become more conservative as I age

Post by tennisplyr » Wed Sep 25, 2019 10:05 am

If you say you "worry" about too much risk, and taking less risk would make you worry less...and hence be more favorable for you...then there's reason to be less risky. It's your life to do with what you choose.
Those who move forward with a happy spirit will find that things always work out.

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