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Money management, retirement advice from 2 top-ranked investors



It's one of those things everyone who has thought about retirement knows: Younger people are supposed to invest in stocks, and older people should mostly own bonds.

But two of the most respected wealth managers in the country say that's a bad approach.

The objections come from Jeff Erdmann, who has topped Forbes' list of the best wealth managers in America for the past three years, and Peter Mallouk, who Barron's named the no. 1 independent wealth advisor four times since 2013.

Both are very positive on stocks as long-term investments. That partially reflects their focus on wealthy families and the maintenance of wealth that can last for generations. But their concerns about the traditional strategy also have major implications for everyday investors and anyone with a 401

(k).

The standard thinking about retirement investing is that younger people should own high-growth assets like stocks, and as the years pass they should gradually become more conservative in order to get a steady stream of income and protect against large losses. The non-traditional response?

"You should throw that philosophy out the window," Erdmann said in a phone interview with Business Insider.

Erdmann, who works in Merrill Lynch's private banking and investment group, says that investors get such bad returns from bond, CDs and similar assets that they can not rely on them the way they did when that conventional wisdom was established.

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For example, the yield of the 10-year Treasury note was more than 10% in 1985 , but has not touched 5% since early 2001. Last year's markets were startled when the 10-year yield was "spiked" over 3%. Other conservative investments also do not provide the kind of return they did in the past decades.

"Whether you're 88 or 18, (with) where we are in the interest rate cycle, your asset allocation is going to be not necessarily tremendously different," Erdmann said.

This is a big contributor to the 10-year-old bull market in stocks: More conservative options have not just appealed to many people for many years. And it's not clear if it will change any time soon.

While Erdmann's objection to the traditional retirement strategy is based on the modern easy-money, low-interest-rate environment, Peter Mallouk of Kansas City-based Creative Planning says he does not think the strategy has ever been a good idea. .

"The way the industry selects portfolio management … does not make sense," he said. "It just never has made sense."

Mallouk runs a $ 39 billion company that was named Barron as the best independent wealth management firm in 2017. He told Business Insider that age is almost irrelevant to retirement investing.

Read more : America's largest wealth manager oversees $ 39 billion for the ultrarich. Here are the 5 ways he says you can invest like 'the millionaire next door.'

In his view, the only thing that is really important is the investor's needs. A well-off young person with minimal needs can make conservative investments, and the older person who is behind retirement savings needs to be more aggressive.

Mallouk says the traditional investment philosophy can leave retirees without enough money to meet their needs in late life.

The two views have different implications: If you agree with Erdmann, you might conclude that investing more heavily in bonds as you age makes sense, assuming that yields will rise substantially in the future. But if you hold with Mallouk, you would focus more on stocks even in retirement.


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