The Risk of Being Too Conservative in Bond Investing
Added longevity means, all things being equal, is that it behooves you to invest a wee bit more aggressively than did your grandparents. Lifespans have increased. If you are now 65, there’s better than a 50/50 chance that either you or your spouse will still be alive at age 90. If you plan to retire at age 65, that means you need a portfolio that can provide cash flow for at least 25 more years.
Two and a half decades is a long time. It allows for inflation to eat up a good bit of your savings. (Consider how much gasoline, a chocolate bar, or a loaf of bread cost 25 years ago.)
How aggressively should you invest? That depends on many factors and whom you ask. There is, unfortunately, no firm consensus among financial professionals. Just like the amateurs, each has a certain bias.
Most financial pros have moved well beyond the old adage, held dearly for years, that the percent of your portfolio held in bonds should be equal to your age. (By age 60, you should be 60 percent in bonds; by age 70, 70 percent; and so on.) Some say that the formula is as antiquated as the crossbow — and, potentially, just as dangerous.