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Latest life expectancy data shows that your money will need to last a lot longer than you might think
Thursday 13 May 2021 Author: Steven Frazer

This is the latest part in a regular series in which we will provide an investment clinic based on hypothetical scenarios. By doing so we aim to provide some insights which can help different types of investor from beginners all the way up to experienced market participants.

John has just turned 50 and is concerned that his investment portfolio may be too growth focused and may need repositioning as he moves closer to considering retirement. The logistics manager from Sussex is not a novice investor and has a SIPP (self-invested personal pension), which his employer pays into, plus a couple of ISAs (individual savings accounts).

But John has lacked the time to be very hands-on with running his portfolio so has restricted himself to researching and investing in trackers and a handful of actively managed growth funds and investment trusts, where he can benefit from the expertise of specialist managers to do the detailed equities analysis on his behalf.

Growth investing has been very good to John over the 17 years that he has been investing, having put money into popular growth funds including Fundsmith Equity (B41YBW7), Baillie Gifford Global Discovery Fund (0605933), Jupiter UK Special Situations (B4KL9F8) and investment trust Scottish Mortgage (SMT). These active funds have returned an average 17.4% a year between them over 10 years.

His collection of low-cost ETFs, such as Invesco EQQQ NASDAQ-100 (EQQQ), Vanguard FTSE All-World ETF (VWRL) and iShares Core S&P 500 ETF (IUSA) have also made excellent returns.

You could live to 100

Since 1982, life expectancy at birth has increased by 8.4 years for men and 6.1 years for women. Most of us will know that we are collectively living longer but what is less well appreciated is that we all have a pretty good chance of living longer than these averages, a lot longer if you are healthier or wealthier
than average.

For example, a 60-year-old man now has a 1-in-4 chance of living to 93 and a 1-in-10 chance of reaching 98. Your parents may have bid farewell before clocking 80 but you have a pretty good chance of getting close to 100.


John is now worried that, after hitting the half century age landmark, his portfolio may be too aggressive and too high risk and that now might be a sensible time to start reeling back on growth investments and taking a much more cautious approach.

He has read about the ‘100 minus age’ approach, a common rule of thumb used to decide how much of an investor’s portfolio should be in equities, and how much in supposedly safer assets such as fixed-income bonds, gold or even cash.

The rule says that you subtract your age from 100 to arrive at the ideal asset allocation for your investments. So, if you are 30, then 100-30 would give 70, which is the percentage of equity you should have in your portfolio, with the rest in safer assets. In John’s case, now aged 50, the rule implies that only half of his investment portfolio should be in equities, the other half in more reliable investments.

Put simply, the rule aims to help investors decide how to position their portfolio as they get older and the end of their working life, and the salary they have been earning, inches closer.

There are a few things John should consider before making a decision. The first point to make is that ‘100 minus age’ is only a rule of thumb, albeit a well-intentioned one, but it is not hard and fast advice.

One major problem with the rule is that it simply assumes that age alone should decide an investor’s asset allocation, and this is not the case. Factors such as an individual’s risk appetite, goal timelines and return requirements are major factors which should also inform how you allocate your investments.

Another significant factor is how long you anticipate living in retirement and in need of private income, because it may be much longer than you think. Thirty-five years ago, an average 60-year-old man could have expected to live an extra 18 years, to age 78.

Today, the average 60-year-old man should expect to live to 85, according to an easy-to-use life expectancy calculator provided by the UK’s Office for National Statistics. A 60-year-old woman should expect to live longer, to 88.


Increases in life expectancy mean your money has to last a lot longer than you might have thought.

For John, who is not even in retirement yet, switching out of equities, even growth stocks, could be an overly cautious approach that increases the chances of his money running out while he is still alive. Maintaining more exposure to riskier investments, like the stock market, for longer could ease the threat of him running low on cash in retirement, even if it may make him feel uncomfortable at times.

One thing John could do is to spread his investments across a wider number funds to include lower-risk options, perhaps including bond funds, a low-cost gold ETF and capital preservation equity, where some options have a very good track record of protecting investors against losses.

A great example of capital preservation is the Morningstar gold-rated Personal Assets Trust (PNL), a UK-listed investment trust which has delivered a benchmark-beating 7.7% increase in annualised net asset value over the past three years, a period that includes the impact of the pandemic.

Gold has safe-haven credentials, particularly when measured over months or years. You can get low cost exposure from iShares Physical Gold ETF (SGLN) which has an ongoing charge of 0.15%.

The Allianz Strategic Bond Fund (B06T936), which leans on the significant expertise and resources in fixed-income investing, has returned 13.2% each year on average over the past three years and has a 0.63% ongoing charge.

DISCLAIMER. This article is based on a fictional situation to provide an example of how someone might approach investing. It is not a personal recommendation. It is important to do your research and understand the risks before investing. The author owns shares in Fundsmith and Scottish Mortgage. 

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