“With stock valuations near record levels, and relatively high interest rates, there’s a compelling argument to consider allocating more to bonds, not less,” says Rogovy.
Does the old adage, ‘the percentage of bonds in your portfolio should be the same as your age’ still hold true in today’s economic environment?
We think "your age in bonds" and other policy portfolios are a blunt instrument. The optimal asset allocation varies widely across different financial environments and personal needs.
Some updated guidelines, like the Rule of 110 or Rule of 120 boost equity exposure by 10-20 percentage points over the "age in bonds" rule. But with stock valuations near record levels, and relatively high interest rates, there's a compelling argument to consider allocating more to bonds, not less.
Do financial advisers talk to their clients about these sorts of things? If that's an old school way of thinking, what is the new way?
While age is an important factor in asset allocation, there are many more that we look at for every single client. Advisors commonly use a subjective risk assessment, where they ask clients to gauge their risk tolerance. Behavioral economics teaches us that these subjective assessments can often lead to a sub-optimal allocation. Therefore, we also include an objective risk assessment which entails a retirement stress-test as part of a comprehensive financial plan.
For more information about this, please see our blog article here: https://magnifina.com/articles/your-age-in-bonds-fails-as-an-investing-rule/
