How Age Corresponds to Asset Allocation

Thomas R. Kosky

Physician's Money Digest, May 2007, Volume 14, Issue 5

This past spring I taught acourse—quasiacademic,but extremely practical—on investments and portfolioconstruction at theUniversity of Miami covering a widevariety of topics, many of which wouldbe of interest to the physician-investor.One subject of particular interest keptraising its head: asset allocation.

There was a study conducted someyears back by Gary Brinson and GilbertBeebower who surveyed nearly 100pension fund managers, reaching theconclusion that attribution of returnswas primarily dependent not on securityselection or your ability to "time themarket," but on asset allocation. In fact,more than 90% of the attribution ofreturns was due to asset allocation.

More specifically, the subject thatkept arising in class was the percentageof investment monies that should beinvested in stocks, bonds, and cash.Obviously, this is going to be heavilydependent on your age, investment timehorizon, and risk tolerance, but I cameacross some surveys by large investmentcompanies that I think may be of help.

For the sake of anonymity, suffice itto say that the results of the followingsurvey are taken from four investmentfirms of which everyone would befamiliar, and the funds in question surveyedare those investment firms' retirementfunds.

When eyeballing these results, do notcome to the conclusion that you shouldimmediately log on to your retirementaccount Web site and reallocate your401(k), 403(b), or IRA investment portfolioto reflect these figures. This is onlymeant to act as a guide showing youhow four large investment firms areallocating the assets within their retirementfund portfolios. The younger youare, the more aggressive you should berelative to investing money in equities—domestic and international. As you nearretirement, you should trim back onyour equity exposure as a means of mitigatingvolatility (ie, reducing marketrisk) since you will be drawing on theseaccounts for retirement income.

Thomas R. Kosky and his partner, Harris L.Kerker, are principals of the Asset Planning,Group, Inc, in Miami, Fla. The companyspecializes in investment, retirement, andestate planning. Mr. Kosky also teaches corporatefinance in the Saturday Executive and Health CareExecutive MBA Programs at the University of Miami in CoralGables, Fla. Mr. Kosky and Mr. Kerker welcome questions orcomments at 800-953-5508, or e-mail Mr. Kosky directly