This Standard Piece of Investing Advice Is Too Risky
Advisers generally recommend an 80 percent allocation to stocks, but that’s way too much. It should be more like 35 percent.
Investors need to de-stress their lives.
Photographer: Geoffroy Van Der Hasselt AFP
My mother is 73 years old. She has a nice sum of money saved up from a long career as a public servant that is invested in two mutual funds. One is a high dividend fund that mostly consists of international stocks, and the other is a short/medium duration corporate bond fund. Her investment objective is to earn income, and the blended portfolios yield about 4 percent. She has a 43 percent allocation to stocks.
Twice in the last year her financial adviser approached me and asked whether it’s time to diversify her into “aggressive growth stocks.” The second time it happened, I gave him an abridged version of my thesis on asset allocation. I said the problem with people and money isn’t that they don’t have enough of it, but rather it’s that their money causes them stress, and the primary source of that stress is debt and risk. My mother sustained a miniscule drawdown during the market swoon at the end of last year. If she had been 100 percent in aggressive growth stocks, it would have been much worse.