Two reasons for changing inventory allocation rules Professional5 months ago - Services - Florida City - 60 views
Two reasons for changing inventory allocation rules
Very simple, isn't it? not necessarily. While thiseasy-to-remember how-to guide can help remove some of the complexity fromretirement planning, it is time to revisit this specific guideline. Over thepast few decades, a lot has changed for the American investor. On the otherhand, life expectancy here, as in many developed countries, has risen steadily.Compared to just 25 years ago, Americans in 2017 lived nearly three yearslonger.1 Not only do we have to increase nest eggs, but we also have more timeto grow our money and recover from the fall.
Meanwhile, US Treasuries are paying a fraction of what theypreviously paid. As of March 2020, 10-year Treasuries yield less than 1%annually. In the early 1980s, investors could count on interest rates of over10%
For many investment professionals, facts like these meanthat the "100 minus your life" axiom puts investors at risk ofrunning out of money in their final years. Some have modified the rule to 110minus your age - or even 120 minus your age, for those with a higher tolerancefor risk.
Not surprisingly, many fund companies follow these revisedguidelines - or even stricter guidelines - when assembling target appointmentfunds. For example, funds with a target date of 2035 are for investors who arecurrently around 50 years old (as of 2020). But instead of allocating 50% ofits assets to stocks, the Vanguard Target Retirement 2035 Fund has allocatedroughly 75%. The T. Rowe Price Retirement 2035 Fund increases the risk, withnearly 80% in equity.
It is important to keep in mind that these guidelines areonly a starting point for making decisions. A variety of factors may shape theinvestment strategy, including retirement age and the assets needed to maintainan individual's lifestyle. Because women live nearly five years longer than menon average, their retirement costs are higher than men and an incentive to bemore aggressive with their eggs.
The bottom line
Establishing an individual's stock allocation on the basisof age can be a useful tool for retirement planning by encouraging investors toslowly reduce risk over time. However, with adults living longer and receivingfewer rewards from "safe" investments, it may be time to amend the"100 Minus Your Life" guidelines and take more risks with pensionfunds.