Datapoints the WSJ used to support this included the following:

1. At Vanguard, one fifth of taxable-brokerage account investors aged 85 or older have nearly all their money in stocks.

2. Nearly half of Vanguard 401(k) investors who are actively managing their money and over age 55 held more than 70% of their portfolios in stocks. In 2011, just 38% of 55 and older investors did so.

I’d like to share with you two takeaways I had after reading the WSJ piece.

As investors – and in all that we do in life – we need to be very careful about drawing conclusions from a handful of datapoints, especially when they come from a biased source. In this case, the author might not be biased per se, but she was trying to write a compelling article. And she was trying to make the case that older Americans are “rolling the dice in the stock market, ignoring the conventional wisdom [that would have them] protect their nest eggs by shifting more of their investment to bonds.”

She has selected datapoints that support her case.

I do not disagree with or refute the data. Rather, I’m not sure we can draw the conclusion that she did because we don’t have enough information. For example, on the first data point, we have no idea if these clients have all or even most of their investible net worth with Vanguard. Who is to say whether, for instance, an 85-year-old husband and wife with a net worth of $10 million and a $1 million all-equity account with Vanguard is exposed to too much risk? Maybe their other $9 million are in U.S. Treasury securities, they have no debt and live an otherwise modest lifestyle. That’s not an accurate description of the typical Vanguard account holder, but you get the point.

And with the second example, why is 2011 the right frame of reference or comparison point? Most folks were underinvested in equities in 2011 after the S&P 500 suffered losses of more than 56% from 2007 to early 2009. Many investors exited the markets at the wrong time back then and were slow to return to equities at a time when stocks were attractively priced and had many years of upside ahead.

But my bigger issue with drawing that conclusion is that every investor is different. And what is an appropriate or ideal way for one person to be invested will vary considerably.

Let’s go back to the example of the 85-year-old couple with $10 million in investable net worth and $1 million in the stock market. Only after spending time with them to better understand their unique financial situation and desires can we correctly determine what level of equity-market exposure and investment risk is right and appropriate.

This includes knowing their:

• Investment goals – Do they want to protect what they have? Use their nest egg to produce current income? Grow it over the long term and then pass it on to the next generation?

• Risk tolerance – Can they stomach some short-term volatility, or would they rather sleep better at night even if it means lower long-term returns?

• Time horizon – Is this capital for them or for their younger family or “legacy”?

• Other individual preferences such as wanting to be over-exposed to growth or low-turnover strategies.

The level to which clients are invested should be dependent on them. It starts and ends with them. And in this profession, we must consider ourselves successful only when they’re successful.

Published on Advisor Perspectives.