July 27, 2023

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Good day. As life expectancies increase and the cost of life rises, the average age of retirement has risen alongside. Can you guess what the average age of retirement is in the U.S. now? a. 60 b. 61 c. 63. Follow the wave 🌊 below for the answer.

Here are the topics for today:

Retirees Are Investing Like Youngsters
Soft Landing Projections Are Back
Be Wary of Trends

INVESTING

Retirees Are Investing Like Youngsters

Investing for retirement has traditionally been viewed as a gradual progression from risk-on to risk-off as you age. This usually manifests itself in the form of slowly transitioning from mostly stocks to mostly fixed-income assets and cash as you enter retirement.

Lately, that norm has begun to be challenged more so than ever. Older people are now investing more like their descendents, and less like retirees.

What to know

Usually, the younger you are, the more risk you can safely take on — a general rule of thumb for this is to hold a percentage of equities equal to 100 minus your age. This is broad, but we see the idea at work in things like target date funds, for example, which gradually reduce their market exposure as they near their target year.
Recently though, aging investors have become more likely to ditch that concept, at least to some extent. About half of Vanguard clients aged 55+ that manage their own funds had a 70% or greater allocation to stocks, up from just 38% in 2011. Even a fifth of older investors (85+) were keeping nearly all of their money in stocks at last check, up from 9% in 2012.
Why the change? There's no single concrete reason to point to, but anecdotally, we can easily see that investors have begun to take "time in the market beats timing the market" very seriously, and no longer worry too much about market crashes —it'll bounce back. "The spirit of the times is 'Don't worry about the markets crashing. They will come back up and set new highs,'" said Robert Shiller, a Nobel Prize-winning economist at Yale University.
Is it wise? That depends almost entirely on your situation. If someone has enough income/savings to live on in perpetuity and prefers to keep a high exposure to stocks in retirement, they'll likely be fine no matter what. On the other hand, if you plan to rely on your portfolio (or a sizable piece of it) for retirement income, incurring that extra risk is a dodgy undertaking.

Take this related lesson and earn 🟡 Dibs:

Rebalancing Your Portfolio

Investing Basics

8 mins

ECONOMY

Soft Landing Projections Are Back

It's difficult to land a plane delicately in any conditions, let alone in the midst of strong crosswinds, and it takes a mix of experience, some outside guidance, and a little bit of luck to do so successfully.

Getting historic inflation in check while avoiding a recession might as well be the same thing. It's hard to aggressively throttle down the economy without bringing it to an abrupt halt, but that's what the Fed has been tasked with. And they might just pull it off.

Checking the conditions

What is a soft landing? Most agree it's a scenario in which we're able to bring down inflation without going into a recession. It's basically a goal of Central Banks when increasing rates just enough to fight inflation without causing a severe economic downturn.
What we've accomplished: CPI inflation peaked at 9.1% last June and has meandered all the way downward to 3% for the 12 months ended June 2023. Meanwhile, markets have been ablaze on the backs of AI hype and tech stocks, with the S&P 500 up almost 19% on the year, crypto has been checked, and even lofty housing prices are beginning to slowly decline. Not a perfect execution by any means, but not bad either.
What else we're seeing: Unemployment has remained unresolved by the Fed's aggressive actions, sitting at a historically low 3.60%. Meanwhile, voluntary quits and vacancies have continued to decline, indicating businesses are becoming slightly less talent deprived.
The projections from prognosticators are also growing increasingly optimistic. Goldman Sachs trimmed its projected odds of a recession over the next 12 months down from 25% to now 20%, and businesses and economists surveyed by the WSJ lowered their odds of a recession from 61% to 54%.
Simply put, the plane has continued its descent from turbulence without major incidents so far. Whether or not we'll be able to navigate the remainder of this landing smoothly depends a lot on if more complications arise. Like famous baseball catcher/philosopher Yogi Berra said, "It's hard to make predictions, especially about the future."

MONEY TIP

Be Wary of Trends

Trend investing can be somewhat of a thoughtful whim if done correctly, and might even end up profitable if you're lucky. It's not just limited to going on Reddit to commiserate with your fellow apes and discuss diamond hands and meme stocks either.

Trends extend to many other viable investments too. Emerging markets, ESG, green energy, EVs, 3D printing — the list goes on. We all engage in trend investing at some point, and it even makes sense at times.

So no, engaging with trends is not a categorical investing sin, but there are certainly some ways it can become one.

How to analyze a trend

Is it sustainable? There are two distinct kinds of trends — those that are a spark toward something that will likely be pertinent in the future (like AI), and those that are blatantly ephemeral. Getting in on the former could mean beating the crowd, whereas riding out the latter for too long could result in big losses.
Does it solve a problem? What helps to classify a trend as one of the two is deciding whether or not it solves an important problem in a viable way. If the answer is no, it's pretty likely this fad will get replaced or forgotten in due time.
Can I benefit from this without incurring too much risk? Trends of all flavors can be profitable to invest in, but they come with different levels of risk involved. To discern if it's a good idea for you, you'll need to know your risk tolerance and room for error. Is the upside worth it, and can I afford to lose my investment?

🌊 BY THE WAY

💼 Answer: 61. Inching up over time, the average age of retirement was once 59 back in 2002. Now, more Americans are planning to work longer (Gallup)
📦 Made in China? No, made in Mexico (Axios)
🎓 ICYMI. 3 things every graduate should know about money (Finny)
🤖 Cooling inflation could help bouy tech valuations (TechCrunch)
📊 Finny lesson of the day. In the spirit of investing for retirement, you may want to take a look at an uber-accelerated strategy for retirement — the FIRE method:

Is the FIRE Movement For You?

Retirement Planning

6 mins

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