How much of an ARF should be in equities?

There is a very good thread on the website about how much a normal retiree should invest in equities . As is often the case, there was some very good arguments put forward. The person who started the thread was looking for a definitive answer, what % should a retiree invest in equities in their ARF, and they were specifically looking for the opinion of advisors who post on the website (which I do frequently).

But it’s not as easy as just giving a number. As an advisor and financial planner, a huge amount of information has to be assessed before any investment strategy is suggested for a retiree:

  1. How old the client is
  2. How old their spouse is
  3. How is their health
  4. Level of income required
  5. Size of pension fund
  6. Other assets/ sources of income
  7. Capacity for loss ( this is an overriding factor)
  8. Attitude to risk

If you have a relatively small ARF,  to generate a bigger income from your retirement fund, you need to take more investment risk. But you probably have a lower capacity for loss.  That is, will a worst case scenario have a detrimental impact on your lifestyle? As an advisor, I can’t tell you to invest 100% in equities to maximise the expected return if I know a 40% fall in value will have a detrimental impact on your lifestyle. On the other end of the spectrum, high net worth clients can afford to take more investment risk but why should they if they don’t have to?

If I go through the financial planning process with you with lifelong cashflows, we can calculate the level of risk you need to take with your money. As you get older, you tend not to want to take lots of investment risk with you money and you spend less money too, so there is less need to generate an income. The loss of income from a job makes people feel very vulnerable because they feel that if they make a bad investment decision, that there money is gone and they don’t have the opportunity to earn back their losses.

Investment Risk

Understanding investment risk is a big issue for not only retirees but for everyone who invests money. I always ask a new client what their understanding of investment risk is and 95% of them say that you can lose your money. While that may happen where you invest in start up companies or there is borrowing involved, investing in quality companies and bonds will not result a permanent loss, just a decrease in the value of your investment. It’s the same as if you own an investment property and there’s a property market crash. The value of your investment has gone down, but they house is still there and the tenants are still paying rent.

You have to remember that when you buy shares in a company, you are a part part owner of that company (even if just a tiny owner). These tend to be large global companies such as Apple, Google, Disney etc and you get to share in the rewards and losses of those companies. Yes, there is a chance that one of them will go bust (usually through fraud or mismanagement) but when you are invested in thousands of companies, you can withstand the impact of one going bust.


The discussion on how much retiree’s should invest in equities tied in well with a new piece of software we are currently trialing called Timeline. This software package has collated market returns since 1900 and runs the likelihood of your running out of money over investment periods since then e.g. if your retired during the Great Depression or the World Wars, how much could you withdraw. By running thousands of scenarios, it gives you an indication of whether you investment strategy is too conservative or risky or if your income demands are too high. I look forward to trying it out with clients before we decide whether to add it to our planning tools.

If you have any questions or would like to see what Timeline has to offer, drop me an email at