A random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing

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A LIFE-CYCLE GUIDE TO
INVESTING
There are two times in a man’s life when he should not
speculate: when he can’t afford it, and when he can.
—Mark Twain, 
Following the Equator
I
NVESTMENT STRATEGY NEEDS
to be
keyed to one’s life cycle. A thirty-four-year-old and a sixty-
four-year-old saving for retirement should use different
financial instruments to accomplish their goals. The thirty-
four-year-old—just beginning to enter the peak years of
salaried earnings—can use wages to cover any losses from
increased risk. The sixty-four-year-old—likely to depend on
investment income to supplement or replace salary income—

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cannot risk incurring losses. Even the same financial
instrument can mean different things to different people
depending on their capacity for risk. Although the thirty-
four-year-old and the sixty-four-year-old may both invest in
a certificate of deposit, the younger may do so because of an
attitudinal aversion to risk and the older because of a reduced
capacity to accept risk. In the first case, one has more choice
in how much risk to assume; in the second, one does not.
The most important investment decision you will
probably ever make concerns the balancing of asset categories
(stocks, bonds, real estate, money-market securities, etc.) at
different stages of your life. According to Roger Ibbotson,
who has spent a lifetime measuring returns from alternative
portfolios, more than 90 percent of an investor’s total return
is determined by the asset categories that are selected and
their overall proportional representation. Less than 10
percent of investment success is determined by the specific
stocks or mutual funds that an individual chooses. In this
chapter, I will show you that whatever your aversion to risk
—whatever your position on the eat-well, sleep-well scale—
your age, income from employment, and specific
responsibilities in life go a long way toward helping you

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determine the mix of assets in your portfolio.