Does the traditional investment split of bonds and equities based on age still apply?

A friend from the past reached out with a good question - if Social Security and pensions cover the household needs, does it still make sense to use Treasuries. This is a great question as it challenges yesteryear's approach to retirement: put your age in bonds.  The thinking is that you should take less risk the older you get because you will have less time to recover from a market pullback.

It can take three to seven years to climb back up in stock price while you are sipping off of it to support your retirement activities. In turn - a 20% pullback that sees some spending could take a decade to get back to your networth - you might not even live to see it. So, it definitely makes sense to have low-risk, income-producing investments such as AAA bonds such as US Bonds.  But, what if you already cover your basic needs on low-risk income like pensions and Social Security? Well, that's totally different and absolutely affects your strategy.

I2Guru takes Big Finance metrics with a grain of salt.  They currently say you get 10% returns (Average Stock Market Return: S&P 500 Historical Performance | SoFi) in the stock market - 6-7% after being adjusted for annual inflation. After being in Big Finance target retirement funds the majority of my career prior to waking up to the reality of what Big Finance is doing to our hard earned money, I can attest that it's more like 6% returns - resulting in more like 3% adjusted for inflation. They trick us in our portfolio metrics by claiming our contributions are "growth" to make the trend look better. Their S&P 500 metrics is a "survivors" metric - cutting out would be losses from companies that go under like Blockbuster, Commodore, and Sears.

If you are dependent on your investments to pay the bills on top of Social Security and pensions, the big thing is inflation.  It is hard to predict. This is where bonds can be less attractive.  If you don't "buy on the dip" with bonds - you may likely not beat inflation over the long haul.  However, if already own your house, your property tax is likely locked in for life due to your age, the kids are established, and you have Medicare - the impact of macro inflation isn't going to affect you that much. For example, my wife and I have been going out for Mexican for $30 - $40 bucks since 1995. In reality, the older the get, the more risk you can actually take if your nest egg has been growing during retirement.

To sort all this, under the Tools menu of this site, you can find our Retirement Plan tool. It gives you a good idea on how much money you'll stuff in your coffin.

For my peace of mind, I cover my household with Social Security, Pensions, and US Treasuries or other AAA+ bonds like Microsoft, Apple, and Google. I bought them at a yield that is well over historic inflation.  I'll either keep them until maturity in 20 years or I'll sell them if yields drop giving me what could be a 40% capital gain. If yields go up above 6%, I'll trade some stocks for that as historically that won't stay there for but a few years. This approach allows another Great Recession or Great Depression to come and I stand to make a lot of money as the world retreats to the where the money printing covers the debt - US Bonds. Also, companies are legally bound to pay their debt (bond) holders first, then figure out how to cover their dividends - which they can cut at any time. So, I really like US Bonds to cover the basic expenses.

But - the rest of my principal - I absolutely invest it like a 20 year old - with a few caveats.  I never use ETFs, Mutual Funds, or crypto. The amount of money that is leached off of such shares is despicable in my view. It's just gambling where the house controls the returns. I2Guru's goal is to gain shares in companies that either are an investment into a game changing technology - or shares that are based on healthy companies with large free cashflow - ones that will continue to grow or pay a respectable dividend that tracks with inflation. In fact, we target companies that ARE inflation (energy, food, finance, telecom, healthcare). We then enroll in the loan programs that loan my shares to people playing the options market. This brings in extra income covering the phone and streaming bills - an income source that is normally scraped by the funds without you knowing they are even doing it.

So, to answer my friend's question - absolutely trade like you're a kid again with the disposable income.  It's not about allocation percentage - it's about what it takes to cover your expenses. After that's covered, do what you think will create the best generational wealth you can - or spend it on health, travel, and luxury.  You earned it. For investing, though, just stay realistic.  When it hits the fan - it's the ones that own something of value, like a share of a company or property, that will profit versus suffer.