Are Baby Boomers Taking on Too Much Stock Market Risk?

Almost half of Vanguard 401(k) investors—over the age of 55 who manage their own money— hold over 70% of their portfolios in stocks. That’s up from 38% in 2011.

At Fidelity Investments, nearly 40% of investors between the ages of 65-69 invest about 67% of their portfolios in the stock market.

Are older investors becoming too aggressive? Many experts say yes. By any measurement owning 70% or more of your portfolio in stocks for folks over 55 is considered aggressive—and few professional money managers would invest in such a fashion.

Typically as investors age, professional money managers trim down their exposure to stocks, which are considered risky investments, and shift more to acceptable safe alternatives like gold and silver bullion, bonds, and cash.

According to the time-honored formula of 100 minus your age, investors who are at least 55 years old should invest a maximum of 45% of their assets in the stock market. Why does this matter?

Access to Your Money When You Need It

Investing too heavily in the stock market later in life can put you at risk if the stock market goes into a downturn or even a crash. Older Americans who need cash might have no choice but to pull money out of the stock market at a significant loss.

While the U.S. stock market rebounded quickly from the Covid pandemic bear market, that was not normal. History shows that, on average, bear markets since WWII took the S&P 500 about three years to recover to a break-even point based on stock price. If you need money before that three years is up, you’d be selling stocks at a loss.

Even when you think you may not need the money you have in the stock market, health issues can arise. A 65-year-old couple can expect to spend an average of $315,000 on medical expenses during retirement, according to a Fidelity Investments study. It pays to have access to liquid investments—like gold—so you can access your money when you may need it unexpectedly, without having to sell stock investments at a loss.

Why Are Older Americans Holding So Much Stock?

There are a couple of reasons that older Americans may be so heavily invested in stocks. The first is that some Americans did not save enough money for retirement throughout their working years. These older investors are rolling the dice in the hopes they can play “catch-up” with outsized stock market returns.

Another explanation is that people, especially those who are managing their own money, forget to rebalance their portfolios at least once a year. It’s easy for allocations to get out of whack unless you make a concerted effort to rebalance on a regular basis.