Meeting the Needs of Retirees: A Different Twist on Asset Allocation

Rekenthaler, John
January 2000
Journal of Financial Planning;Jan2000, Vol. 13 Issue 1, p40
Academic Journal
This article provides information on how financial planners may meet the needs of retiree clients, particularly asset allocation. As currently defined, asset allocation is for the young. That is, the typical approach followed by sophisticated financial planners nicely suits investors who are accumulating assets, but it fails those who already possess their nest eggs. For retirees, the usual variety of asset allocation offers the wrong notion of volatility, reverses the truth of time horizon and fails entirely to account for a key variable: the pattern of market returns. By asset allocation, the author means a process that begins with the formulation of long-term asset-class expectations. These inputs are then combined within a framework of mean variance optimization to form various potential portfolios, which are said to occupy the efficient frontier. Finally, the asset allocator surveys the client's risk tolerance so as to narrow the list of potential choices to a single, optimal portfolio. In contrast with total return, which is presented as something highly tangible, most financial planners treat market volatility as largely a psychological condition.


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