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April 28, 2010


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50/50 at 25 is a bit conversative in my eyes. I'm currently at atabout 90/10. at retirement (age 60), I will move to the 50/50 mark.

Anthony --

It's the same for me. I was interested to see all these splits -- most seem way too conservative.

It's a bit odd. Why did the writer make a list when essentially, he reccomends 50/50 under 60 years and 40/60 for 60 years old and up? I'm also in the camp that says that it's way too conservative. A 25 year old has almost fourty years to recoup any losses. Almost every other opinion including mine is that they should be much more aggressive than 50/50.

Terrible advice...but what do you expect when you read a financial advice book by a LAWYER!
I'm sure as heck glad I didn't invest this way when I was younger...I'd have a small fraction of what I do now.

I am currently 25 and almost every penny I have is in equities. I agree that the ratio's above are far too conservative. Certainly if you're under 30 most of your money should be in equities. I wonder why the writer is so conservative? Perhaps there is more in the book that explains, and FMF can enlighten us as to why.

I agree with the commenters above...a 50/50 split when you're less than 30 years old is just plain wasteful. We are around 85% equities and 15% bonds and cash and that's a little conservative...what's stated above is just silly.

Since we want to retire by 52, we also are going to move to the conservative investment side quicker than most, but right now, less than 80% in equities at age 26 would just be nuts.

And, like rzrshrp, why bother making a list when there's only two options? He must have really been craving some extra page room of something...maybe his editor thought he needed more visuals...

All --

I'll be covering the eight ratios more in depth as well as telling where I stand on each of them in some upcoming posts.

The simplest rule of thumb is that your bond allocation should approximate your age so that you're taking less risk as you get older and no longer have the time to recoup losses.

I think this is way too conservative. Stocks will outperform bonds in the long-run. It's only when you're approaching retirement and can't handle a 10 year decline in the market that it makes any sense to move money into bonds. It's not "prudent" for a 25 year old to put 50% into bonds, it's accepting a lower return on one's investments. If the stock market really was going to tank for 50 years, we might as well be worried that the whole US government would default on their debt, in which case bonds would be worthless.

definitely must be a typo as no 25 year old should have 50% of their money invested in bonds, that is way too conservative. but again, it all depends on what an individual can stomach in regards to volatility and risk. Some 25 year olds are scared to death of risk, so they might take this advice.
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I am in the same camp as most other commenters. A 50/50 split is way too conservative for most young people. Can you actually make up the hidden loss of purchasing power by investing at 50/50 for 40 years? By how much will the ratio change AFTER the bond market tanks?

Arbitrarily speaking, they do seem quite conservative.

I'm not opposed to the idea of someone suggesting "better" asset allocations, but what I would love to know isn't what %, but more importantly, WHY? Why is this a better allocation?

I guess I'll have to wait until the post to find out more.

Getting 50% every 5 years really hard to invest, it should be like 20% percent every 5 year which would be easy and better way because the we never know, when we have to face the recession.

I think overall those allocations are borked.

But, I'll offer a view contraian to the traditional view. Your two main wealth producing assets are (i) your human capital and (ii) your financial capital. When you are young, your human capital is subject to much more risk than someone who is say 60 years old. If you take this approach there is a decent arguement to be made that young investors should probably have a higher weight of fixed income than the traditional view, middle age investors should be the most aggressive (because at this time their careers have probably solidified, etc.) and then older investors should move back to a more fixed income weighted allocation. This is essentially a view proferred by Laurence J. Kotlikoff (a professor of economics at Boston University). It's part of his "consumption smoothing" approach to financial planning.

@Bender: The way to compensate for the risk of losing your human capital is disability insurance, not over-conservative investing decisions.

Any money you don't need soon (within 5 years) should be invested in equities - regardless of age. If I am going to live to 85, then even at 55, I have some money that needs to grow for 30 years.

And you should treat any pensions, social security payments, etc. as equivalent to ultra-safe bond investments when calculating your ratio.

etc., etc.

if you follow intelligent investor by benjamin graham, you'll find that 50/50 is the most appropriate ratio for most of the public (even 60/65 yr old). graham provides wide range of scenarios and ages and helps you conclude that in absence of ability to predict future, 50/50 ratio is the one that makes most sense for majority.

we are all missing something mentioned in the post:
Later we will discuss why I believe this approach, which may seem conservative to some, is actually quite prudent, even if you are young.
are we there yet???

Param --

This is an excerpt, so it's not included. If you want more discussion of this ratio, go here:

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