Two of America’s most acclaimed wealth managers for the ultrarich explain why a famous approach to retirement investing is dead wrong — and reveal what people should do instead

It’s one of those things everyone who has thought about retirement knows: Younger people are supposed invest in stocks, and older people should mostly own bonds.

But two of the most respected wealth managers in the country say that’s a bad approach.

The objections come from Jeff Erdmann, who has toppedForbes’ list of the best wealth managers in Americafor the last three years, and Peter Mallouk, whoBarron’snamed the no. 1 independent wealth advisor four times since 2013.

Both are very positive on stocks as long-term investments. That partially reflects their focus on wealthy families and maintaining wealth that can last for generations. But their concerns about the traditional strategy also have major implications for everyday investors and anyone with a 401(k).

The standard thinking about retirement investing is that younger people should own on high-growth assets like stocks, and as the years pass they should gradually get more conservative to get a steady stream of income and protect against big losses. The non-traditional response?

“You should throw that philosophy out the window,”Erdmann said in a phone interview with Business Insider.

Erdmann, who works in Merrill Lynch’s private banking and investment group, says that investors get such weak returns from bond, CDs and similar assets that they can’t rely on them the way they did when that conventional wisdom was established.

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For example, the yield onthe 10-year Treasury notewas more than 10% in 1985, but hasn’t touched 5% since early 2001. Last year markets were startled when the 10-year yield briefly “spiked” above 3%. Other conservative investments also don’t provide the kind of returns they did in decades past.

“Whether you’re 88 or 18, (with) where we are in the interest rate cycle, your asset allocation is going to not necessarily be tremendously different,” Erdmann said.

That’s been a big contributor to the 10-year bull market in stocks: More conservative options just haven’t appealed to a lot of people for many years. And it’s not clear if it will change any time soon.

While Erdmann’s objection to the traditional retirement strategy is based on the modern easy-money, low-interest-rate environment,Peter Mallouk of Kansas City-based Creative Planningsays he doesn’t think the strategy has ever been a good idea.

“The way the industry selects portfolio management … doesn’t make sense,” he said. “It just never has made sense.”

Mallouk runs a $39 billion company that was named by Barron’s as the best independent wealth management firm in 2017. He told Business Insider that age is nearly irrelevant to retirement investing.

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In his view, the only thing that’s really important is the needs of the investor. A well-off young person with minimal needs can make conservative investments, and an older person who is behind on retirement saving needs to be more aggressive.

Mallouk says the traditional investing philosophy can leave retirees without enough money to meet their needs late in life.

The two views have different implications: If you agree with Erdmann, you might conclude that investing more heavily in bonds as you age makes sense assuming yields rise substantially in the future. But if you hold with Mallouk, you would focus more on stocks even into retirement.

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