Baby Boomers Should not “Stay the Course” Because Most Are on the Wrong Course

The standard advice in market corrections like the one in the first quarter of 2020 is to “Stay the Course” because stock markets always recover. This is true, at least so far, except some recoveries, like the recovery from the Great Depression, can take a long time. It took a decade to recover from the Great Depression. But most importantly, the advice to “Stay the Course” assumes that you are on the right course. The unfortunate reality is that most baby boomers are on the wrong course because they are taking way more risk than they can afford to take at this critical time in their lives. Baby boomers should be changing course.


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The Wrong Course

Most baby boomers are following the 60/40 equity/bond rule, an asset allocation “solution” that has evolved through time and is roughly based on market composition. The total market for equities and bonds is the most diversified, and it is approximately 60%  equities where equities include stocks, real estate, commodities, etc. Consequently, the average IRA (Individual Retirement Account) is invested 60/40, regardless of age. Similarly, the average target-date fund is 60/40 near the target date. Consequently, most baby boomers are invested 60/40.

Baby boomers cannot afford the risk in a 60/40 portfolio because they are in what is called “The Risk Zone” spanning the 5-10 years before and after their retirements. Losses sustained in the Risk Zone can be life-shattering, reducing a standard of living for the rest of a person’s life. See “Why the 60/40 Rule is Stupid.


The Right Course

The primary investment objective of people in the Risk Zone should be to protect their lifetime savings, even if it means missing out on some market gains. Safety First is of paramount importance, so the Right Course is to invest entirely in very safe assets like Treasury bills and intermediate-term Treasury Inflation-Protected Securities (TIPS). Most baby boomers will not move to this extreme, but they should protect their savings as much as they can, even though the returns on safe assets are currently low. It is better to protect savings than to risk losing them at this critical juncture in life.



Moving to safety is the wise thing to do from a risk management perspective. Risk should be low in the Risk Zone. Plus there are several other reasons to be safe. The current horizon is filled with threats, any one of which can create a market crash. COVID-19 is just one of these threats. We discuss other threats in our  10 Reasons to be Concerned About Stock and Bond PricesThe odds of at least one of these threats occurring in this decade are quite high, and baby boomers would suffer the most. It is a risk that is simply not worth taking


Next steps

Baby boomers need to act now to get on the “Right Course” to protect their lifetime of savings. Consequently, staying on the current 60/40 risky course could be a huge mistake that could have dire consequences for decades.