The mythical average investor

In the 1950s, the United States Air Force faced a puzzling problem. Pilots were struggling to control their aircraft, and crashes were becoming alarmingly frequent. The initial assumption was poor training or pilot error. But investigations revealed something more mundane and more damning: the cockpits didn’t fit.

These cockpits were designed around the measurements of the “average” pilot from the 1920s. Americans had grown bigger, and the Air Force decided to fix the problem the obvious way: find the new average. They measured over four thousand pilots across nearly a dozen physical dimensions and redesigned the cockpit to fit the average 1950s pilot.

The result was a surprise. After all those measurements, not a single pilot matched the new average. Every pilot had what researchers later called a “jagged profile.” Some had long legs but short arms. Others had large chests but small heads. The average, it turned out, was a statistical fiction that corresponded to no actual human being.

This story—popularised by Harvard’s Todd Rose—should give pause to anyone who has ever received standard financial planning advice.

You know the formulae I mean. Young people should invest aggressively in equity because they have time to recover from downturns. As you age, shift gradually to fixed income for safety. Your equity allocation should be 100 minus your age. Retirees should avoid stocks and focus on capital preservation.

These rules sound sensible. They emerge from reasonable assumptions about how life typically unfolds. But like those cockpit dimensions designed for the average pilot, they fit almost nobody’s actual circumstances.

Every investor, it turns out, has a jagged financial profile.

Consider two twenty-five-year-olds starting their careers. The standard advice would treat them identically—both should be aggressive equity investors with decades ahead of them to compound wealth. But one might be the sole earner supporting ageing parents, funding a younger sibling’s education, and saving for an impending marriage. The other might be living with parents, unburdened by dependents, with years of financial freedom stretching ahead.

Should their investment approaches really be identical simply because they share a birth year?

Now consider two sixty-year-olds approaching retirement. Conventional wisdom would push both toward conservative fixed-income investments. But their circumstances could not be more different. One might have children still finding their feet professionally, an outstanding home loan, and modest savings that must somehow stretch for decades. The other might have children settled in lucrative careers, a fully paid home, rental income from inherited property that naturally keeps pace with inflation, and savings that comfortably exceed any conceivable need.

The first genuinely needs the safety of guaranteed returns. The second could arguably take more risk than many young investors, because volatility poses no real threat to their lifestyle.

The financial planning industry, like the Air Force of the 1950s, finds averages convenient. They allow for standardised advice, simple calculators, and one-size-fits-all products. A wealth manager can slot you into a model portfolio based on your age and a risk questionnaire without truly understanding the jagged contours of your life.

This approach serves the industry’s efficiency far better than it serves your actual needs.

What should replace these formulae?

The honest answer is: more effort and a rigorous analysis of your specific circumstances. Your investment approach should be grounded in questions that no standard formula can answer:

How secure is your income? Who depends on you financially, and for how long? What fixed expenses are you committed to? Do you have assets that generate inflation-adjusted income? What is your actual need for liquidity versus your psychological comfort with it? How would a 30 per cent market decline genuinely affect your life, not just your feelings?

These questions have different answers for every individual. And those answers change as life unfolds. The young professional burdened with family responsibilities today may find those obligations lifting in a decade. The comfortable retiree may face unexpected health expenses that reduce risk capacity overnight.

A practical note: Most investors agree with this idea right up to the moment they have to apply it to their own portfolio. That’s when the old averages sneak back in: “I’m 38, so I should do X.” Or “I’m 61, so I must do Y.”

If you want an “adjustable cockpit” for your mutual fund portfolio—guidance that adapts to your holdings, goals and constraints—this is exactly what Value Research Fund Advisor is built to do. It’s our SEBI-registered advisory service that helps you decide what to Buy / Hold / Sell, and why—plus the unglamorous but high-impact clean-up work (like identifying poor choices and switching costly regular plans to direct where appropriate).

See how it works.

The cockpit problem was ultimately solved not by finding better averages but by making cockpits adjustable. Pilots could modify seats, pedals, and controls to fit their individual dimensions.

Your financial plan deserves the same customisation.

Age-based formulae can be a reasonable starting point for those who have no idea where to begin. But they should never be the destination. Your life is jagged. Your financial plan should be as well.

And if you’d like that jagged plan translated into clear portfolio actions—without guesswork—Fund Advisor is the simplest next step.

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