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The 60/40 Glidepath Is Dead for One Simple Reason

Expert Opinion September 19, 2024 at 04:04 PM
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Ric Edelman, founder of Edelman Financial Engines

Remember when the 60/40 glidepath was the gold standard? Well, it's time to bury it.

The reason is simple: We're living a lot longer than we used to.

By 2054, one in every hundred people will be older than 100 years. Add up all the people who ever lived to age 90, and you'll discover that 90% of them are alive right now. Compare that to 1900, when life expectancy in the U.S. was 47. Or the American Revolution, when more than a dozen of the signers of the Declaration of Independence were 35 or younger.

Yet, the 60/40 portfolio — which begins to ratchet that 60% stock allocation down to 50%, then to 40% and 30%, beginning when the clients reach age 65, was designed for people who'd live in retirement for maybe 20 years.

But what if most of your clients live 40 years? Or 50? Suddenly, that 60/40 glidepath looks pretty risky.

You would never tell a 30-year-old — someone who you expect to live for 40-plus more years — to invest only 30% of their assets into stocks. So why tell that to someone who's 60 who also has 40 years to go?

Yup, it's time to rethink that 60/40 glidepath.

First, extend it. Maintain the 60% allocation (or even increase it) well into the client's 70s and 80s.

Second, act more like today's institutional investors. They're buying alternatives: private equity, real estate, crypto. And if you're worried about the risks associated with all this, remind yourself of the real risks that your clients face. They include the risk of inflation, the risk of ever-higher taxes, and the risk of outliving their money.

Don't believe me? Rerun that set of financial projections you showed your client last week. This time, run it with the assumption that your client dies at age 100. Your monitor will blow up. Shrapnel everywhere.

Yeah, those projections you run that assume clients will live to 85 or 90 are simply not accurate. Thanks to advances in health care and medical innovation, we're conquering the diseases that are killing us.

In 1850, the leading causes of death in the U.S. included dysentery, cholera, typhoid, tuberculosis and scarlet fever. We've all but eliminated those illnesses, allowing people to live longer. (When's the last time you had a client die of cholera?)

Today, the leading causes of death include heart disease, respiratory illness, diabetes, cancer and drug addiction. Over the next 20 years, they'll all be cured, thanks to coming advances in artificial intelligence, machine learning, robotics, big data, 3D printing, bioinformatics, bionics, neuroscience and more.

This is where your role as an advisor becomes crucial. You're not just managing money. You're managing expectations.

So here's your call to action. Read studies in longevity. Examine the research in exponential technologies — they not only offer insights into the future, they provide amazing long-term investment opportunities (something you can include in your equity allocations).

The 60/40 portfolio served us well for several decades. But it's time to say goodbye, and move to the new paradigm dictated by the new longevity curve.


Ric Edelman is an author and founder of the RIA Edelman Financial Engines. He now leads the Digital Assets Council of Financial Professionals.

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