It seems to be common advice that a retirement portfolio should be invested aggressively when one is young, and conservatively when one is older and closer to retirement.

Is this good advice? Shouldn't I just pick some risk level and stick with that throughout?

  • Here's a related popular question, although it presumes the answer to your question is "yes": What is the best asset allocation for a retirement portfolio, and why? ... Yet, the answers (shameless plug!) may inform. Jan 13, 2014 at 0:22
  • The ability to take on risk changes (decreaes as we get old) because we are not able to work as harder and ultimately must stop working; we need to take on more financial responsibilities and also spend more momney on health and medication. Hence the common advice to invest with a lower risk appetite as one ages.
    – Victor123
    Jan 13, 2014 at 20:22

1 Answer 1


Consider this:

You're 20, the year is 2008, and your $15K savings are slashed in half because S&P500 crashed. In 50 years, when you need to go to groceries with that money, the S&P500 has gained 2000% since.

Now consider you're 70, the year is 2008, and your $15K savings are slashed in half because S&P500 crashed. But now, you're going to the groceries the next day. You don't have any more 50 years to wait for S&P500 to go back up. Now your budget for retirement is halved within a couple of months.

Since the tolerance to risk when you're retired (or close to be) is significantly lower than when you're young - the investment choices should be changed accordingly.

So yes, it is a good advice.

  • I don't see the difference. In the first scenario, the S&P halves, and then gains 2000%. In the second scenario, the S&P gains 2000%, and then halves. This works out the same. Jan 12, 2014 at 22:49
  • 3
    @AshleyYakeley the difference is that while you may have 50 years of gaining and riding the "good" wave of 2000% gain, in the second case you are already past that, what you have is what you have and there's not going to be any chance of fixing it.
    – littleadv
    Jan 12, 2014 at 22:50
  • Exactly. Fluctuation of the account's value is to be expected, but you don't want to be forced to withdraw at a significant loss. At age 20, you aren't withdrawing, so you can ride out the dip and not notice it. At age 70, when you've started drawing down the account, it effectively means you're spending more of your principal and giving up the opportunity to recover. This doesn't mean you should avoid all risk during retirement, but it does mean risk is increased and your risk tolerance is (or should be) decreased.
    – keshlam
    Jan 13, 2014 at 2:21

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