Is ‘100 Minus Your Age’ Still an Appropriate Investment Guideline?

This formula has been a general ‘rule of thumb’ for asset allocation for years. Simply put, it causes your investment strategy to become more conservative as you age, because obviously you have less time to recover, should there be a serious economic downturn. The formula states that an investor should hold a percentage of stocks equal to 100 minus their age. In other words, a sixty year old individual, should have 40% of the retirement portfolio in equities (100 – 60 = 40). The balance should be in safer and more protective investments. For example, it has been common for the balance to be comprised of high-grade bonds, government debt and physical precious metals.

Look back just twenty years though and you realize that the average person is now living three years longer and the average woman is living five years longer than a man. Combine that with the fact that U.S. Treasury bonds are paying a fraction of what they used to pay. For example, back in the Eighties, 10-year T-bills regularly paid a yield greater than 10% and today you can’t count on a yield of even 3%. Many investors are currently enamored with the results they’re receiving from fund companies like Vanguard, who have been on a terrific run, but did you know that those funds, like the Vanguard Target Retirement 2030 Fund has 76% invested in equities? And a similar fund provided by T. Rowe Price is closer to 80% in equities? When you’re hot, you’re hot and it’s easy to celebrate. But let’s get real for a minute.

Even by the old guideline, the 2030 funds are geared to a 50 year-old investor, who by guideline design, should have 50% of the retirement portfolio in equities (100 – 50 = 50). So why are investors so calm and cool having four fifths of their retirement tied up in a market that has quite possibly already run its course? Moreover, with precious metal prices more than substantially below previous highs, doesn’t it make sense to stock up on even more than the typically recommended 5% – 15% portfolio allocation? Particularly when you realize that since the beginning of 2000, the NASDAQ has nearly doubled (4,069.31/7,645.51), the S&P 500 Index has nearly doubled (1,469.25/2,779.03) and the DJIA has well-better than doubled (11,497.12/25,316.53). That’s terrific and plenty to get excited about! But did you know that gold has more than quadrupled ($287.80/$1,297.85) during the same span of time and silver has more than tripled ($5.34/$16.94)?

Now, let’s look at current global conditions and apply what we’ve learned. Global political tensions are approaching an all-time high as the U.S. has withdrawn from the Iran nuclear deal, Paris Climate Agreement, and threatened to withdraw from NAFTA. Meanwhile, China is lobbying the International Monetary Fund to replace the dollar as the world’s premier global reserve currency, American allies are scrambling in the wake of a new round of U.S. tariffs, and there is discussion of Russia returning to the G-7, while the U.S. is removed. Any and all of these activities have the ability to disrupt and even destroy the U.S. stock market, currency and economy. If there was ever a need for portfolio protection, that time is NOW!!! And precious metals potentially and historically provide the best protection from such a variety of potential calamity. Don’t get caught without a chair when the music stops! Call American Bullion at (800) 653-4653.