Jennifer Lopez’s performance at this year’s Superbowl half time show sent the internet buzzing. Not simply because she delivered a montage of hits, with an over-the-top choreographed dance routine and a plethora of sexual energy.
But because she could do all of this at age 50.
In fact, many believe she looked and performed even better than she did over 20 years ago, when she released her first hit single, “If You Had My Love”.
Jennifer Lopez’s energy and stamina remind us once again, that age is just a number. Thirty is the new forty, sixty is the new seventy and ninety is, well…still pretty old, at least for now. Attitudes toward age have changed dramatically over the past 30 years, particularly as baby boomers have redefined what is and isn’t possible. As a reminder, in 1985 one of the “The Golden Girls” was presumed to be 53, only 3 years older than Jennifer Lopez is today.
The 100 Minus Age Rule
There is an age-related principle currently being defied today in investing. It is called the “100 Minus Age Rule” and it is used as a rule of thumb for determining the percentage of equities/stocks an investor should have in their portfolio.
To calculate, simply take 100 and minus your age to determine what you should have invested in equities vs what you hold in fixed income and cash. Based on this formula, at 50, Jennifer Lopez should have 50% of her investments in stocks. The older she gets, the lower the amount she would hold.
The reason for the change is that historically, equities have delivered much higher rates of return that fixed income and cash, but have also been much more volatile. This volatility, particularly with large drops, can significantly impact a portfolio, particularly as an investors nears retirement and doesn’t have the advantage of time to to get back to even. As investors near retirement, portfolio stability becomes much more important when withdrawing a consistent income.
But as lifespans and time in retirement has significantly increased, the 100 minus age rule has come under fire. Many individuals begin their retirement planning later than expected and need to be more aggressive in their asset allocation. Or they may retire earlier and have other sources of income which impact their recommended equity allocation. On top of all of this, is the new reality of lower fixed income returns in the current interest rate environment.
But as much as we like to believe age is a state of mind, we do have to be prudent and prepare for the unexpected. Madonna is living proof of this today.
Time Goes By, So Slowly
While J. Lo is showing us that time can stand still (or even rewind), Madonna on the other hand, is reminding us that we also have to be realistic about age. Madonna is one of the most hard working and successful musical artists in history and has built a reputation as a timeless and adaptable singer and performer, attracting generations of fans. But at 61, even she is not immune to time.
Her Madame X tour has demonstrated that even an ageless attitude can’t overcome the multiple injuries and 6 hours of daily rehab that her physically demanding shows have caused. The current tour has wreaked havoc with her body forcing her to cancel twelve shows to date, deal with two class action lawsuits, and called into question whether she can continue to perform at the level she once did.
Retirement may be out of the question for Madonna, but the realities of age are certainly going to be taken into consideration going forward.
The same realities needs to taken into account for your own portfolio. The stock market has delivered very strong out-performance versus other asset classes, particularly over the past ten years. But on a short-term basis, the reality is that the markets can be extremely unpredictable. During the last major correction in 2008, we saw markets drop 50% from their peak.
If Madonna was forced into retirement and not prepared, a sudden market correction could be devastating on her portfolio and her ability to live the lifestyle she had planned (Note: please don’t worry too much about Madonna – she is worth an estimated $850M).
Asset allocation is probably the largest investment decision an investor can make. While the 100 minus age rule of thumb may not necessarily be as relevant, always ensure you build a plan based on the worst case scenario.
While we may all agree “age is just a number”, we also have to agree that with respect to investing “one size doesn’t fits all”. Financial plans are not the same for everybody and it can be dangerous to over-simplify how much a person’s portfolio should look.
There are a number of different factors to consider including; retirement and investment savings, retirement goals, and risk tolerances and a number of online tools available to assist you, but always ensure you speak to a professional. Jennifer Lopez’s “Love Don’t Cost a Thing” but a comfortable retirement certainly will.