Monday, August 29, 2011

Challenge age-related assumptions about investments

“It is always comforting to read headlines that confirm one’s prejudices”. This is the first line of an article in today’s FT. I am aggrieved – that is my type of statement.

The writer is talking about the assumption that: “Dumping equities in later life does not suit everyone.”

A couple of professors at Cass Business School’s Pension Institute in London, argue that retirees should sell bonds to buy annuities and keep a significant equity holding until much later in life.

The received wisdom is that as you get older and approach the point where you need ‘security’ that you should move your investments out of equities and into ‘safe’ investments - like Greek bonds (sorry my joke).

Of course, “risk free” investments equal low return assets.

I would have thought that as we try and understand the implications of the downgrade of US government debt and the nightmare unfolding in Europe, where Government debt has a worse credit rating than the corner store, that the idea that there are any ‘safe’ investments is a concept that we can pack away into ancient history.

The learned professors don’t use this as their justification but rather that people work longer and so can afford to take extra risk –Mmmmm not sure about that.

Another learned academic is quoted with the highly original observation that “age is a poor predictor of behaviour” and that it is better to think of people as “lifestyle tribes”, based on their attitudes, affiliations and financial state.

Wow this is advanced thinking!

Nice to see that academia is catching up with reality. Sorry, I cannot give you a link to the article since the FT is paywall site. Dick Stroud

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