That’s what Fidelity Investments is implying in their recently-released Q3 2019 Retirement Analysis. They reported that almost 40% of 401(k) plans owned by workers born between 1946 and 1964 maintain an allocation to stocks that is higher than Fidelity’s recommended allocation for investors in those age groups. And almost one in twelve have all their retirement savings in equities. Are they right? Are Boomers heading for a fall?

Let’s first look at Fidelity’s benchmark for stock allocation percentage by age. The company’s target-date “Freedom” funds start at a 90% stock allocation for a 25-year old investor. As the investor ages, the percentage allocated to stocks decreases. It’s just under 70% for those within ten years of retirement (age 55), and further declines to slightly over 50% for a 65-year old retiree. Are these appropriate benchmarks? If you believed that everyone at age 50 should have the same allocation to stocks, then you could consider Fidelity’s stock allocation model to be reasonable. But stock allocation is just part of a broader balancing act between asset preservation and growth, also known as risk vs. return, and realistically achieving that correct balance in an investment portfolio should be more a function of one’s current savings and future goals than it is of one’s age. A 50-year old planning to retire at age 55 should have a very different allocation strategy than another expecting to work until age 70.  

Those Boomers who have all their 401(k) assets in stocks may very well be taking on too much risk, though. After all, we are now over ten years into the longest bull market in history, with equity asset prices currently well above their historical averages. Regression to the mean, a commonly accepted tenet in the investing world, suggests that at some point in the future stock prices inevitably will drop by a pretty wide margin. Since 1928 there were 53 stock market declines of greater than 10%. And a 401(k) invested 100% in stocks is likely to experience the same level of collapse (if not worse) that the market at large. Of course, these investors may have other accounts not held at Fidelity, and consequently their total portfolio might be better balanced. Let’s hope so.

It’s worth paying attention to Fidelity’s reports since, as one of the largest retirement benefits administrators, they have access to a sample size on the order of 30 million accounts. Are they being too alarmist? While I don’t think they’re using the most appropriate benchmarks, I appreciate their contribution to the dialog about managing risk, especially during a time when investors may have become complacent about it. I think it’s wise for every investor to apply a contrarian view. When markets are growing, start thinking about adding protection and/or reducing exposure. When markets are struggling, start looking for buying opportunities. The worst thing you can do is invest your money and then ignore it. A 60/40 stock/bond portfolio in 2008, left untouched, would have turned into an 85/15 portfolio today. There’s truth in the adage “If you don’t rebalance your portfolio periodically, the markets will do it for you.”

Here’s a link to the Fidelity report’s summary: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/press-release/quarterly-retirement-trends-111419.pdf