Rethinking Equities and Retirement Income
The asset allocation rule of thumb in financial planning holds that an individual’s portfolio should be allocated to equities according to the formula “100 minus his or her age.” For a retiring 65 year old, this would mean a 35% equity allocation. The logic behind the rule is simple: as people get older, they should dial down their risks as they have less time to recover from any financial mistakes. But like any rule of thumb, it can be clumsy, and even misleading, no more so than today when advisors searching for ways to provide their clients with retirement income are confronted with unprecedentedly low interest rates.
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