The industry has used these antiquated terms like “aggressive” or “moderately conservative” to make investment recommendations. Not only are these terms subjective (moderate means something different to you than it does to me), they’re based on stereotypes that don’t hold water.
Every investor has a unique tolerance regarding risk and reward that is frequently independent of age. After combing through our risk assessment data, we found that 52% of 20-29-year-olds don’t fit their “aggressive” stereotype. And stereotypes don’t work any better for older folks. 53% of 70-79-year-olds didn’t fit into their “conservative” stereotype, either. Imagine if smartphones only worked <50% of the time—would people still buy them?
What happens when more than half of all investors are invested incorrectly? They panic during market volatility. Some feel greedy and buy; others sell out of fear. Both reactions might negatively affect their long-term goals. This cycle repeats itself until they eventually change their investment strategy, fire their advisor, or both.