At 46 why are you holding 60% equity for retirement?

Published: May 2, 2021 at 10:22 am

Last Updated on February 12, 2022 at 6:13 pm

Each time I publish an updated retirement asset allocation, I get asked this question: “At age 46, are you not holding too much equity?” In this article, I discuss a common misconception about asset allocation and how much equity is suitable for a middle-aged person.

As we begin investing for retirement, say in our mid-thirties, we are clueless about at least two factors: (1) how much volatility we can tolerate in real-time and (2) and how our risk appetite and goal priorities change.  As we keep investing the lessons we learn are innumerable and incredible.

As mentioned in yesterday’s article – There is more to retirement planning than building a large corpus! – my approach to retirement planning in the last decade has undergone a sea change. While this article covers the technical aspects of my learning, here is how my personal goals changed.

Like most people, the first time I used a retirement planning calculator, I got the, “you do not have enough money to invest”. This may be disheartening but we do not know how our future cash flow will change. In the 20s and 30s, our main goal should be to try and increase our main income as much as possible. In the 40s and 50s, while regular investing continues, the focus can shift to creating passive income streams that last a lifetime.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

I was amazed by the power of continuously increasing our investments and what a sudden market rally after years of no return can do to your portfolio and to your station in life! When we begin, we cannot appreciate the power of these forces. Those who put their head down and invest without immediate expectations stand a better chance of success.

As the networth builds from 1X to 5X to 15X to 30X (X = annual expenses that will persist in retirement), your approach to risk changes, your goals change. Of course one cannot make arbitrary changes to a plan. The core plan is clear. As of now, my retirement age is 65 and if I punch my nos in the robo advisory template, I can afford to hold on to 60% for at least the next few years. Max retirement age in the template is 60 as everyone should be ready to retire by then!

Asset allocation for a 46 year old suggested by the freefincal robo advisory template
Asset allocation for a 46-year-old suggested by the freefincal robo advisory template.

Now there are two different ways of viewing this result.

  1. If I am already holding 60% equity – I am, see: Rebalanced my retirement portfolio after 13Y, a crash & recovery! – then not only am I comfortable with this suggestion, but I also think of tweaking it as below.
  2. If I am middle-aged and hold little or no equity, there are only two choices: Either DIY a custom asset allocation schedule (the results will be tough to stomach!) or consult a SEBI registered fee-only advisor.

So 60% equity holding may seem right or wrong depending on how much equity we are currently holding. Also, percentages mean little. A person may only hold 40% debt, but what is it currently worth?

I had often talked about 30X as the threshold of financial freedom. That is a networth of 30 times current annual expenses that would persist in retirement. This means for zero real return (inflation = post-tax overall portfolio return after retirement) the corpus would last for 30 years.

Before I cross this 30X mark, it seemed like a big deal, but today, my targets have changed. “Can my debt portfolio hit the 30X mark?”, “Can I afford to hold on to 60% equity all my life?” I do not have answers for these, but my point is, after years of investing out outlook changes.

Our goal targets change, the way we look at asset allocation and risk management change. This is something we ourselves cannot anticipate, so naturally, others cannot as well. Certainly not from percentages.

So in general how much equity is “right” for a middle-aged person? This largely depends on their capital market experience. Those with experience will never ask this question! Assuming middle age is 40-50 (in this context) and retirement is 55 (for those in corporate, 50 may be a better estimate than 55!), there are not more than 15-10 years of investing years left.

This is a difficult problem to solve: no experience with equity and only 10-15 earning years left. What would you do? I would recommend getting the equity asset allocation at least up to 40% as quickly as possible, say within three years. Get ready to hold at least 20% equity after retirement.

This brings us to another question: how much equity should we hold after retirement. In the goal-based portfolio management lectures, interesting and counter-intuitive evidence on this subject is presented.

One of the most important lessons on investing I have learnt over the years is this: portfolio management has two components: (1) a well laid out plan that takes into account as many of the knowns as possible; (2) the ability to look at a developing situation (crash, recovery or sideways market) and make course corrections. There is not well-defined set path here. We have to create our own as we go along. And when we do, we tend to redefine the goals as well.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)