I have quite a few clients in their eighties and a number in their late eighties. That is not particularly surprising when your client base is chock-full of retirees and near retirees.
What did surprise me a bit is a call from an 87-year old client yesterday afternoon. She called to inquire why her friends are making more money in the stock market than she has been making recently.
“Are most of your friends in their 40s or 50s?” I asked.
“No, they’re my age,” she said.
“Well, then. The advisers for your friends could be in a heap of trouble someday.”
“What do you mean?”
“I mean that we have 50% of your account in stock assets and your account is growing in value at approximately half the pace of the U.S. stock market. And while there are no flawless rules for an 87-year old’s stock allocation, most advisers might peg it closer to 33%. So in order for your friends to be making more than you in stocks, their advisers would likely be risking 60%-70% in stocks, instead of the prescribed 30%-40%. And that amount of risk taking would be seriously frowned upon by the CFP Board as well as the Securities and Exchange Commission.”
“Oh,” she said. “So then I also have too much in stocks, right?”
“If I were holding-n-hoping with your 50% stock allocation indefinitely, then yes,” I said. “However, we rebalance accounts when certain conditions are met. When the monthly market price breaks below its long-term trendline, we will reduce your stock allocation to 25%. That is how we protected you in the 2008 financial crisis.”
“I know, I know! I tell my friends all of the time how little I lost in 2008!” she said enthusiastically.
Shortly after we ended our telephone conversation, I flashed back in time to the late 1990s tech boom. Was this interaction emblematic of the greed near the peak of the 2000 bubble?
