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"Older Americans invest like 30-year-olds"

David_Snowball
in Fund Discussions
That's on page one of the Wall Street Journal (Thursday, 7/6/2023). People in their 60s and beyond are ignoring Harry Markowitz's diversification advice and are maintaining equity exposures in the 70% neighborhood. (They report different findings from different firms with different age brackets and equity exposures, but the central tendency is that people in the 60s have exposure in the 60s.)

Good news: it's probably propping the market up.

Bad news: they're probably making a mistake. One mistake is TINA. There Is No Alternative to stocks, since cash and bonds have had negative real returns for so long. (Which has changed, but we credit change slowly.) The other is that sell-offs don't matter because stocks quickly rebound and set new highs. (Which depends on the Fed Put, the willingness of the Fed to drive rates to zero and buy ETFs in order to save the market.)

Interesting story.

Comments

  • sma3
    I have a very good friend that at 81 says he has 90% of his money in equities. He does have a pension, relatively low expenses, independent kids and owns his house outright, but he wanted a new boat and didn't buy it last year because the market crumped.

  • Observant1
    edited July 2023
    Good story.
    It appears FOMO may have influenced several of the profiled investors.
    I was surprised by the number of Vanguard investors over age 74 who had nearly all their money in stocks.

    "In taxable brokerage accounts at Vanguard, one-fifth of investors 85 or older have nearly all their money in stocks, up from 16% in 2012. The same is true of almost a quarter of those ages 75 to 84."
  • JD_co
    Perhaps the scare tactic of repeatedly telling retirees that they could outlive their money forces them to lean into equities. Advertisements seem to push this narrative - it's as if we will all live to be at least 95 years old.

    Also, we all need at least $4M to retire....and gold is a fantastic (hedge) investment. Buy some now!
  • BaluBalu
    edited July 2023
    I do not have access to WSJ but it would be interesting to know if Covid had anything to do with this behavior.

    For example, many retired (or forced to retire) suddenly, with no immediate plan to retire when Covid struck. These retired folks need something to do with their time.

    Also, a lot of Baby Boomers (among my friends and family) with more wealth than they need are investing for their kids many of whom find it stressful to invest large sums. I know many at 100% equity.
  • BenWPBenWP
    I concur with @BaluBalu. It is really hard to know if the high equity allocations are held in accounts which the retirees count on to fund their ordinary expenses or whether they are investments for children or grandchildren who may have a long glide path ahead of them. The article says “taxable brokerage accounts.” In our case we do not rely on such investments for daily expenses because we have adequate streams from RMDs, SS, and a pension.
  • WABACWABAC
    edited July 2023
    Well. I did the right thing by my wife's IRA. And her TIPS and ST Fed funds are still getting hammered, along with everything else.

    Bonds, such as I own them, are part of allocation funds, and DSEEX and FFRHX. But mainly the trash known as cash, which now has cache (Yes, I know it doesn't rhyme) sitting in USFR.

    BTW. My taxable is invested for the kids. My wife would like to buy real estate somewhere cooler than The Valley of The Sun. Her money market is rocking.
  • hank
    edited July 2023
    Maybe, if you’ve lived long enough you’ve come to recognize the value & importance of equities in a portfolio.

    Agree - 90% at 81 sounds a little goofy … Of course, Buffett is 92 and his lieutenant, Charlie Munger, is 99. Suspect they both own some stocks.
  • sfnative
    I guess all one can say is that, so far, it has worked out pretty well. A whole lot better than bonds, foreign anything, or -- god forbid -- the fallacy of emerging markets. And that's been the case for over a decade. So who can blame them for sticking with what has worked. Makes a catchy headline, I guess.
  • Old_JoeOld_Joe
    "the fallacy of emerging markets"... isn't that something like groundhog year?
  • Sven
    edited July 2023
    Unless these folks have a decent pension, social security, and/or other income stream (i.e. rental properties and others), they are taking a lot of risk with high stock allocation. The worse scenario is that these folks don’t have the time to recover if another 2008 drawdown takes place when they need those precious $ to live on. The article did mentioned the bond yields are more attractive today than the past decade Thus, a modest total return is possible this year.

    Addition. Read the article again and wonder how widespread these investor behavior are ? It is certainly makes an interesting article, but the question is does it represent the older and retired demographic ? I for one, certainly, don’t follow that behavior.
  • Gary1952
    edited July 2023
    BaluBalu said:

    I do not have access to WSJ but it would be interesting to know if Covid had anything to do with this behavior.

    For example, many retired (or forced to retire) suddenly, with no immediate plan to retire when Covid struck. These retired folks need something to do with their time.

    Also, a lot of Baby Boomers (among my friends and family) with more wealth than they need are investing for their kids many of whom find it stressful to invest large sums. I know many at 100% equity.

    So much negative news the last couple of years regarding FI. I believe that many just hve learned to dislike bonds and want to be where the action is in equities. While we may not be at the bottom it is certainly a good time to buy discounted bond funds now. I have several in the 3-4% TR range for YTD. At least buy some treasuries.
  • InformalEconomist
    One school of investing advice (from professionals who get interviews or write columns -- some of them, anyway) for past x years has recommended forgetting about "age in bonds" and entering retirement with a high equity allocation to help prevent running out of money much later.
    I would expect quite a variety of reasons for the high equity allocation, including inertia, not wanting to sell on the way down (hope for the future), and a reluctance to part with funds that have stood the test of time in one's portfolio, in addition to all those reasons already mentioned in this thread.
  • Devo
    Bond is certainly a 4 letter word right now among investors. With the fed stepping out of the way and tremendous uncertainty in the path of inflation and growth compared to any other time - please read that as no one knows how to get numbers right - it’s difficult on bonds adjusted for volatility. The winners are short dated floating rate funds of various credit stripes.
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