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Market Strategist

Allocating by the Phases of Life


At a time of blistering fast innovation and numerous fintech companies offering new and insightful ways to analyze portfolios and the financial health of individuals, we think it important to step back and view investing from a higher perspective. Investment firms are great at creating new financial products, but we believe having a dizzying array of investment options is unnecessarily complicated, and it gets in the way of some basic investing principles. Let’s look at investment strategies over one’s lifetime from a more comprehensive point of view and uncomplicate the process for people thinking of retirement.

We believe there are three distinct phases of retirement investing:

Early career. Up to age 45 to 50. This is the period of low current savings relative to future savings potential. An investor during this phase likely has the maximum tolerance to market swings (assuming personal risk tolerance is high). Investments should skew towards higher return strategies (e.g., global equities) and reducing costs to obtain the most market growth potential.

Pre-golden years. Ages 50 to 70. In this phase, current savings are likely larger than one’s future savings potential. An individual’s asset level is nearing the expected retirement position, so protection becomes very important. However, maintaining the asset level needs to be balanced against the need for modest growth to safeguard against inflation. During this phase, the sequence of returns becomes important.

Golden years. Ages 70+. Individuals rely on a fixed income stream. An individual’s asset level is now relatively fixed. Unfortunately, the potential for unknown liabilities—healthcare being the greatest one—increases. In this phase, the retiree has little capacity to take on volatility risk. Conversely, the costs of investments become less important than security of outcome and protection of assets. Now, the sequence of returns is critical.

With this established, let us turn to the three types of investment approaches:

Strategic. The goal of strategic investing is to maximize market returns while keeping the costs of implementation low. Strategic investing is also known as indexing or passive investing. Empirical evidence indicates this strategy has the greatest long-term potential, but with it comes market-like volatility.

Dynamic. Dynamic investing incurs slightly higher costs than strategic investing, costs that are hopefully offset by capturing the inefficiency of asset-class pricing. Again, it comes with market-like volatility, but it should include navigation around world markets. Better-than-market performance is possible because investment managers look for intermediate-term or short-term market inefficiencies to capture.

Tactical. Tactical investing comes with slightly higher implementation costs than dynamic investing, but they can be offset by dramatically lowering volatility and by protecting assets from large drawdowns. Most tactical managers, us included, focus on adjusting market exposure versus specific asset-class return-forecasting because the intent is to mitigate the negative volatility and the downturns that markets have historically experienced.

We are advocates of the idea that each of the phases of life should involve different allocation mixes of the three types of investment approaches:

Related: Market Downturn? What’s Your Price for Protection?

Early in career. We believe a high proportion of investments should be aimed at low-cost strategic strategies with some dynamic approaches mixed in. Empirical evidence suggests that passive investing allows one to gain more of the market potential at a lower cost. Adding dynamic strategies to the mix allows for exposure to intermediate-term themes. Tactical investments can be considered, scaled according to an individual’s risk tolerance, instead of relying purely on low-return bonds as a means to offer defensibility. In a rising rate environment, tactical may need to take a more prominent role.

Pre-golden years. As one approaches the end-point of saving and assumes an increasingly cautious tone to investing the retirement nest egg, sensitivity to the cost of investing should take a back seat to the protection of asset levels, all while balancing the need for a fully invested stance. During these years, then, a less strategic approach with more dynamic and tactical investing is warranted. The investor needs to focus on mitigating worst-case scenarios and should not exit investments at the worst time due to fear.

Golden years. When one is further into the retirement years, asset and income defensibility takes on a much greater role. However, as with the other phases of life, the possibility of longevity and the risk of inflation still warrant some level of equity exposure. Liquidity takes on more importance, now, too. In this phase, we argue for more tactical investing because risk mitigation is of utmost importance. While some accomplish this safeguarding via insurance-type products, remember their costs can be high and their liquidity low, while the chance of reaping the market’s potential with them is almost nil.

Of course, no hard and fast rules dictate the magnitude or timing of these proposed allocation approaches. Imperfection in markets and investment styles prevent that. Instead, we offer these thoughts as a way to look at the bigger picture and also to reduce the complexity of retirement investing.


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