Most of us remember the term DINK, or DINC – “double-income, no kids” – as the demographic moniker for affluent working couples with no children. A quick Google search reveals multiple references to the acronym, several dating back to 1987 articles in Time Magazine and the Los Angeles Times. The sociological term “went viral” in the pre-Millennial, pre-Internet days, when no one knew what “going viral” meant.
The term conjures images of free-spending baby-boomers with disposable income, but no financial dependents. During its heyday of use, the DINK was celebrated as the sociological successor or the 1980’s cultural archetype, the “yuppie” (or “young urban professional,” as most of us recollect). Those in their 40’s and 50’s can’t help but recall that term without the soundtracks of movies like Wall Street and The Secret of My Success echoing in their heads.
The 2008 economic crisis proved to be a dislocating event for many professionals in the financial services industry. Aside from its immediate devastating effect on any Wall Street professional with the word “mortgage” in their job title, the economic upheaval of the last five years relegated many once sought-after professions to the metaphorical status of the buggy whip: not just cyclically depressed, but secularly obsolesced.
The 2008 crisis also left in its wake a new demographic subgroup, which I call STING’s: “Savings (Thankfully), but INcome Gone.” As a New York metro-area resident, I’ve come to know legions of middle-aged, out-of-work Wall Street types whose illustrious turn-of-the-century careers were upended by the 2008 crisis. They now find themselves unemployed or underemployed. Most have enough introspection to realize how fortunate they are to have pre-crisis era nest eggs, but also understand that they will likely have to reinvent themselves professionally in order to find work.
The ascension of the STING’s presents a conundrum for marketers and purveyors of investment services and personal financial advice. Those same clients that had once required tax shelters and post-retirement savings plans now focus on preservation of capital and the search for ancillary income sources. Culturally, these middle-aged souls may seem to be “living in the 90’s,” pre-occupied with values that date back to more buoyant times. Yet, economically, these folks are really “living off the 90’s,” dependent on investment income generated by bonus-year savings from the glory days of banking and finance.
There’s a long-standing investing adage that suggests individuals should invest a percentage of their assets in stocks equivalent to the number 100, minus their age. By this reasoning, a 40-year-old would be well-served by having 60% of her net worth invested in common stocks, while a 60-year-old would only want to be 40%-exposed to equities. As individuals grow older, outlive their peak earnings years and become more dependent on income-generating investments with more limited volatility, they would want to retain less exposure to equities.
I once worked with an astute portfolio manager who questioned the wisdom and efficacy of this formulaic approach to asset allocation. He observed that, for many members of the emerging affluent investing class, younger and mid-life individuals often confront large cash outlays, including home purchases and college fund savings. Notwithstanding the implications of the “100-minus-age” rule, these individuals would be best-served by investing less of their savings in equities, rather than more. As they grow older, these same individuals, relieved of their early- and mid-life financial burdens, have more flexibility to invest in stocks.
It’s less clear how STING’s should approach decisions about asset allocation. They may have sufficient savings to invest in equities and alternative investments, yet their lack of wage income may engender a risk-averse predisposition to conserve cash. By following this instinct to preserve capital, they run the risk of under-investing in equities and over-investing in short-term fixed income investments that yield negative real returns in today’s near-zero interest rate environment. One thing is clear: the STING’s will need carefully-customized financial input from advisers not accustomed to servicing lower-income, high net-worth individuals.