The New More
The Conquest of HappinessLast week in Bologna I met an investment banker and we got on the topic of ING Direct and their incredible success with a strategy centered around simplicity. The banker told me something interesting I hadn’t heard before that I couldn’t find online. Something to the effect that ING Direct tells their customers that to determine how much of their money they should put into high-risk investments versus low-risk ones, just take your age up to 100 years old. However old you are, that is the percentage that you should invest in the low-risk stuff; then take the number 100 and subtract your age from it and invest that percentage in the high-risk stuff. I was impressed with the simple elegance of the thought.
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2 Responses to “Simplified Investing”
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ING administers the 401k plan at my employer and they take the concept a step further for customers who actually use their services. In a standard program, once one determines the ratio of high/low risk investments there is still the unpleasant task of selecting which individual funds to make up your portfolio. As an alternative to this option, ING offers something called solution portfolios which are engineered and named by the year in which you expect to retire (a proxy for age in your formula above). The investments for each portfolio are selected and managed by a professional financial planner, sticking to the composition of high/low risk stuff based on the projected retirement date (10 yr intervals) and selecting individual investments based on performance and other factors.
The result is simplicity in both the strategic (risk ratio) and tactical (portfolio selection) basis for an investment plan.
To boot, the solution portfolios have performed better in the year since they were launched than most of the invidivual funds that are offered ala carte.
It is really simple and elegant and…flawed! As a principle the older you are, the less risk to take but, unfortunately, there are many other factors to consider: are you “wealthy”? do you have family? are you healthy? what is your experience as an investor? will you need the money back quickly? what other investments do you have? have you invested also in real state? will you take care of your investments personally?