Retirement experts generally advise those entering their golden years to invest conservatively—increasing bond holdings over time, while decreasing stocks. The logic is simple: No one wants to outlive their savings because of a stock market crash.
“The dollars retirees have got are the dollars they’ve got,” says financial advisor Michael Kitces. Yet Kitces, a partner with Pinnacle Advisory Group, in Columbia, Md., says the conventional wisdom about investing in retirement is wrong. Rather than decreasing the percentage of stocks in a portfolio during retirement, he argues, investors should do the opposite.
This isn’t a popular view. Rob Arnott, founder of investment firm Research Affiliates, is among the few contrarians on record. Almost all financial advisors use the traditional playbook. And target-date retirement funds generally decrease stock holdings and add bonds over time.
The logic behind the conventional approach is compelling: The shorter your remaining life expectancy, the less time you have to recoup stock market losses. This brings us to popular rules of thumb for asset allocation. One holds that your allocation to stocks should equal to 100 minus your age. Thus when you’re 70, your portfolio should be 30% stocks, and then 20% at age 80.
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