What this article covers
The old rule of thumb — hold your age in bonds — suggests most investors in their 50s and 60s should keep a majority of their portfolio in conservative assets. But real-world data tells a very different story, and many older investors are far more aggressive than conventional guidelines recommend. This article examines why so many older investors hold high stock allocations, whether that’s actually a problem, and what financial advisors say about navigating the trade-offs by age and personal circumstance.
I’m a relatively aggressive investor.
At age 58 (a couple of years ago) my portfolio allocation to equities was 90%. Comparing that to typical financial planning advice, that’s very high:
- A widely known rule recommends an equity allocation of 100 minus your age, which at age 58 would mean 42% in equities, less than half of my 90%.
- More recently, given life expectancy gains and higher inflation, other ‘rules’ surfaced, suggesting 110 minus your age, or even 120 minus your age; at age 58, these would suggest 52% or 62% in equities, still far less than my allocation.
- T. Rowe Price is well known for their “target date” funds; these use more aggressive glide paths that aren’t linear but at age 58 (assuming retirement at age 67) would hold 63% to 77% in equities; even these are far less aggressive than my allocation.
Key Takeaways
The “100 Minus Your Age” Rule for Stock Allocation Is Widely Ignored — and Widely Outdated
Conventional wisdom says to hold your age in bonds — meaning a 60-year-old should hold 60% bonds and 40% stocks. But Vanguard data shows two-thirds of older 401(k) investors far exceed even the more generous updated rules (“110 minus age,” “120 minus age”). Self-directed investors aged 55 and older are four times more likely than those in managed accounts to hold over 70% in stocks.
What Matters More Than Your Age Is Whether You Can Avoid Selling Stocks in a Down Market
Financial advisors generally agree that holding 80% or more in stocks after age 55 can be defensible — but only with 2–5 years of living expenses held in cash or low-risk assets as a buffer. That cushion is what prevents you from being forced to sell equities during a downturn, which is the primary danger of an aggressive allocation near or in retirement.
Your Other Income Sources May Matter More Than Your Portfolio Allocation
Investors with pensions, Social Security income, rental properties, or other non-portfolio income sources can defensibly hold more in stocks — because they’re less dependent on their portfolio for day-to-day retirement spending. The right stock allocation isn’t determined by age alone; it depends heavily on how much of your lifestyle is covered by income that markets can’t disrupt.
Are Older Investors Too Aggressive? What the Data Shows
It appears I’m not alone in this craziness.
Last month, Morningstar published an article titled “Have Older Investors Become Too Aggressive?” examining that very thing. Some interesting points made there:
- Vanguard finds that when their 401(k) investors are given a choice, two-thirds of the older cohort far exceed the “recommended” equity allocation, holding most of their assets in stocks.
- Self-directed Vanguard 401(k) investors age 55 or older are four times more likely than those enrolled in managed accounts to hold over 70% in stocks (none of their target-date funds do so).
- Among investors in Vanguard’s taxable accounts aged at least 85, 20% have essentially everything invested in stocks.
Clearly, many of us hold investment portfolios that are far too aggressive for our ages, at least judging by commonly accepted measures.
The author does caveat the above by noting that Vanguard investors may not represent all investors and that they may hold cash and bonds in non-retirement accounts.
Why Many Older Investors Hold More Stocks Than Conventional Rules Recommend
The answer to this question likely differs for different people. However, the following are offered as possible explanations, and each of us is probably at least somewhat affected by each factor.
- Most living investors have never experienced protracted market crashes, by which I mean ones that last a decade or longer. In the modern era (since WW-II), there have been 12 bear markets. Of these, four lasted less than a year, four lasted between a year and two, two lasted between two and three years, and two lasted longer than three years (but the longest lasted just 49 months). Thus, we’ve been trained to expect the stock market to recover from crashes in short order.
- The age-old diversification tools of cash and bonds have (until very recently) offered measly (if not outright negative) inflation-adjusted returns.
- Other hedges such as oil and gold haven’t done much better.
- Many more of the “investor class” are simply wealthier and can more easily afford to weather a market crash even with a high stock allocation.
- Since many (most?) of us don’t rebalance often if at all, the outsized returns of stocks relative to cash and bonds pushed our portfolios to higher stock allocations (e.g., if you had started with 60% in stocks and 40% in bonds 20 years ago and didn’t add to either since, your current stock allocation would be 90% since stocks had a cumulative 20-year return of 575% and bonds lost 3.8%).
Having said all that, following a spectacular 2020, when my portfolio more than doubled the S&P 500’s already-high returns, I took some chips off the table and moved to a 30% cash/bond position.
After we entered the bear market of 2022, I took advantage of lower stock prices and moved back to a 15% cash/bond position.
Can You Hold 90% in Stocks Through Retirement? Here’s How to Manage the Risk
The answer to this is a nuanced yes.
Given the bear-market-length distribution and modern-era bears showing up about every five years, we could expect a bear market lasting over two years about every 15 years, and one lasting over three years once in 30 years or so.
This is why, in retirement, I plan to hold 2-3 years’ worth of expenses in cash. It makes the risk that I’d have to sell off a significant chunk of stocks into a bear market very low.
If I used the 4% rule, the above cash position would be 8% to 12% allocation. However, I expect to only draw 3.3% in Year 1 of retirement, so a 2–3-year cash position would be less than 10% of my portfolio, allowing me to hold 90% in equities with (to me) acceptably low risk.
Since I’m self-employed and plan to work half-time for a few years as a transition period before retiring, I can defer retirement by another year or two if my portfolio suffers significant losses at just the wrong time.
I also have income sources that aren’t affected by the stock market – we own a couple of rental properties, somewhat reducing our dependence on our portfolio for retirement income.
What Financial Advisors Say About Aggressive Stock Allocations After Age 55
I asked financial pros for their opinion, asking them several questions. Here are the questions and responses.
Under what circumstances (if any) do you think investors over age 55 can hold stock allocations > 80%?
- Scott Custis, Scott R Custis, CFP, Lead Planner at Money Scientific says, “Wealthy clients who want to leave a legacy to their heirs. We typically advise to have 3-5 years of cash and bonds on the sidelines. As markets go up, we sell stocks and buy more bonds. If markets pull back, we sell bonds and buy the dip. This approach can be appropriate for high-net-worth (HNW) and ultra-high-net-worth (UHNW) clients, as well as those who want more stock exposure.”
- Paul Monax, CFP®, finAGILE™ Planner, Agile Wealth says, “People over 55 can hold 80% in stock if they can handle it financially and psychologically. Financially means they have 3-5 years of living expenses in low- to no-risk assets to ride out any volatility that may arise, so they don’t have to sell when their stocks are down. Psychologically means they won’t panic-sell when their investments are down.”
- Ryan Graves, CFA, President of Bemiston Asset Management says, “Age is less important than how far you are from retirement goal. If you’re far from it, you may need to take on additional equity risk to reach it.”
- Peter G. Bobolia, CFP®, ChFC®, Financial Planner, Family First Financial Planning says, “Not many clients over 55 should have over 80% stock allocation if they need portfolio income to live on. Why take more risk than you have to? On the other hand, if you don’t need money from your portfolio to cover expenses 80% may be ok.”
- Kevin Estes, Founder & Financial Planner, Scaled Finance says, “It rarely makes sense for investors over age 55 to have an 80%+ equity allocation. However, it might make sense if they have a very high risk tolerance, have enough assets that a small percentage of their portfolio invested in Treasuries funds all their expenses, and have specific goals which could benefit from such an aggressive allocation. They would also need to be willing and able to adjust should circumstances change.”
- Joe Petry, PhD, CFP®, Founder and Financial Planner, Mayfair Financial says, “One of my colleagues likes to say, ‘Rules of thumb are dumb.’ That’s how I feel about arbitrary limits on portfolio allocations by age. Jack Bogle used to tell people to hold their age in bonds. This greatly underestimates the damage to a portfolio from inflation. I have clients with pensions, annuities, and social security benefits that more than cover their living expenses. They also have insurance for the unexpected, such as long-term care. Their investable assets are gravy—they’re unsure how they’d spend this money during their joint lifetimes if they had to. Such clients could have a 100% stock allocation, for example, if they want to leave a large inheritance. It doesn’t mean they should, but it wouldn’t be unreasonable if they did.”
How do you convince an older client to reduce portfolio stock allocation if you think it’s too aggressive?
- Custis says, “These are the toughest conversations to have. It’s not just owning too much stock, but perhaps owning too much stock in one company. When I worked at Fidelity, I spoke with a GE employee who purchased $800k of GE stock in their 401k plan. When we spoke, it was worth $400k. When you’re in your late 50s, it’s nearly impossible to recover from such a 50% loss. Unfortunately, the investor didn’t take my advice to diversify and will have a drastically different retirement than would have otherwise been possible.”
- Graves says, “Justifying overly aggressive portfolios with bonds offering such attractive yields is difficult. Investors can’t simply write off bonds as negligible sources of return anymore. Furthermore, bonds offer diversification. Moving from an 80% to a 70% stock allocation, investors give up 0.2% of expected return for a portfolio that’s ~11% more risk/return efficient.”
- Bobolia says, “There are plenty of smart older retirees who have seen incredible long-term stock returns. This can’t be guaranteed to continue and most likely won’t. It’s time to settle for the more normal and boring 6% historical average returns. I show clients a risk/return chart that displays a 4% annual return on an extremely conservative 20/80 portfolio vs. a 7% return on an extremely aggressive 80/20 portfolio. Then I ask if the additional 3% per annual return is worth the risk of a 50% loss if we have a major market event like the 2008-2009 ‘Great Recession?’ This is usually the end of the conversation and leads to a safer and more conservative portfolio for my client.”
- Estes says, “I conduct a full review of the client’s financial situation including all funding sources such as pensions, Social Security benefits, home equity, etc. I then model future growth with a more conservative allocation. The client may be able to achieve their goals without overreaching! If not, we discuss tradeoffs.”
Do you think your advice to clients might allow more aggressive positions if legal liability as an advisor didn’t apply?
- Graves says, “No. We’ve left the era of ultra-low interest rates where stocks appeared to be the only source of return. Bonds now offer compelling returns along with diversification benefits. The differences in expected return between ultra-aggressive and slightly more conservative portfolios are much less than before.”
- Estes offers a different response, “I’ve been unwinding a concentrated stock position since I left corporate America. Some shares appreciated significantly, and it wasn’t ideal to take the tax hit all at once. Although I’ve been replacing the single stock with diversified investments, it will take time to reach my desired allocation.”
There you have it. The pros indeed seem to cringe when older clients invest as aggressively as 30-year-olds should.
Should You Reduce Your Stock Allocation as You Approach Retirement?
Conventional financial planning wisdom says you should reduce your equities exposure as you approach retirement and even more over time. At age 67, conventional planning would have your stock allocation at 33%. Even more aggressive variants would keep you under 55% in stocks. By age 85, those rules would shrink your stock allocation to somewhere between 15% and 35%.
If you’re like me (and apparently many other, even far-older, investors), you’re likely to keep your stock allocation higher than that.
Potentially far higher.
Perhaps over 90%!
If so, consult with a financial professional to put in place as many safety measures as possible to mitigate sequence-of-returns risk so an unfortunately timed market crash doesn’t derail your retirement.
Fair warning though – your financial advisor will very likely try to get you to lower your allocation risk.
Are You Ready to Hire a Financial Advisor?
You’ll find a growing number of financial advisors featured on Wealthtender. You can search based on the areas of specialization most important to you and where they’re located, or browse our financial advisor directory for more search options to find advisors who may be a good fit for you.
Find Your Next Financial Advisor on Wealthtender
📍 Click on a pin in the map view below for a preview of financial advisors who can help you reach your money goals with a personalized plan. Or choose the grid view to search our directory of financial advisors with additional filtering options.
📍Double-click or pinch pins to view more.
Disclaimer: This article is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
About the Author
Opher Ganel
My career has had many unpredictable twists and turns. An MSc in theoretical physics, a PhD in experimental high-energy physics, a postdoc in particle detector R&D, a research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started several other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. I draw on these diverse experiences to write about personal and small-business finance to help people achieve their personal and business finance goals.
Follow me on Medium (opher-ganel.medium.com).