Should you invest more in stocks as you get richer?

This question came from a reader.My short answer is "not necessarily".For example, let’s take three people each with $100K income need in retirement that starts in seven years.

  • Person A: Has $1.5mm in retirement funds
  • Person B: Has $2.5mm in retirement funds
  • Person C: Has $5.0mm in retirement funds

Person A likely needs to invest MORE in stocks than would usually be suggested. Because the greatest risk of not meeting their investing goal is if they don’t have enough GROWTH. Whereas standard advice might indicate 52% in stocks (110 – their age), they might need to go as high as 70% or more. I would also recommend that this person plan toa) delay retirementb) increase their savings ratec) consider another income stream in retirementPerson B might decide their retirement fund is enough (they can easily draw 4% from this amount), and they don’t want to worry about it anymore. In this case they could move now to a more conservative stance and sleep well at night. They could even go to the ‘Ultimate Liquidity Portfolio”, which is only 12% stocks. This is a good example of why we must consider emotions when deciding how to invest. Let's not assume the goal is always to "maximize wealth"!Person C might decide to invest the first $2.5m in the Ultimate Liquidity Portfolio, and then be much more risky with the next $2.5m. William Sharpe (Nobel Prize winner), has gone so far as to argue that much of the additional $2.5m can be put in triple levered stock funds, in what is known as a “ratchet” strategy. So this person would again have very high stock exposure, say 70%. A = 70%, B = 12%, C = 70%.In short, I do not think that the rule “more wealth = more stocks” holds for retirement accounts. We must always go back to goals, and the first job is maximize the chance of meeting your goal.