Why Wouldn't Everyone Customize His Own Glidepath?
As we age and accumulate assets, most of us cool off our asset allocations over time. Many people use target date funds or follow their own age based stock/bond ratios. But why wouldn't a person make these changes in a fashion more customized to their individual circumstance and market conditions. I think the individual should.
There is so little we can control in investing. As we age, realistic goals become more clear, and about the only thing we can control in investing is how we respond to markets. Should we arbitrarily decrease our equity exposure just because we reach a certain age, independent of many other factors? Why not incorporate age, clarified goals, past returns, current valuations, future expected returns into our decisions? Does it really make sense to ignore this information? I know this sounds a bit like market timing, but I don't think it is. It's a one way change in asset allocation towards less aggressive as we get closer to retirement, just customized based on much more than age.
Currently we have had a 9 year bull market. That's close to 10% of an individual's lifespan and perhaps 20% of an individual's investing lifespan. Should a 58 year old investor really doggedly stick to his investment policy statement which says don't decrease the equities until he is 60? Or should someone committed to decreasing 1% equities per year really decrease that slowly in the face of personal and market circumstances which have changed much more radically than that? Perhaps it makes much more sense for individual's to look at where they are in their investing lives compared to the markets once every few years, and customize their glidepath towards retirement.
My own personal opinion is that someone within perhaps 5 years of retirement should consider now a great opportunity to take substantial risk off the table, perhaps much more than an arbitrary age based glidepath. And for what it's worth, I think Monte Carlo Simulation is a great tool for making these decisions. Interested what others think.