Age is definitely one factor that is considered in a risk analysis when discussing investment strategy. Some have used a rule of thumb called the “rule of 100.” That involves subtracting your current age from 100. If you are 70 years old, for example, the resulting number is 30. The rule of thumb says you might limit your risky investments (stocks, bonds, mutual funds, variable annuities, commodities, etc.) to no more than 30% of your portfolio. The other 70% (corresponding with your age) would be invested in liquid assets and less risky investments. Some advisors would recommend that you have 6 to 12 months of living expenses in completely liquid assets (like cash) that can be accessed immediately. Of course age isn’t the only factor in risk analysis. Very affluent people might be able to take bigger risks than people with less wealth and a fixed income.
Against popular thought, age should not be the only factor (or perhaps even the primary factor) used as the determination of risk level for an investor. For example, consider the 80-year-old college professor who is not even spending the amount he draw from his state-funded pension plan and social security. If he also has a 403(b) plan containing $50,000, he does not necessarily need to be conservative with the 403(b) investment supply because he is 80 years old. There is a high probability that his 40-year-old grandchildren will end up using the money instead of the professor. In this example, asset allocation could be based on when the money will be used, as opposed to the age of the owner of the account.