BUNK 3
RETIREES MUST BE CONSERVATIVE
Most investors understand that stocks are a great and appropriate investment vehicle—if they have a long time. So complete this sentence: “If I’m about to retire, I have a ____ time to invest.” If you answered “long,” congratulations—that’s probably correct. If you answered “short” and you’re correct, it means you don’t have long to live and it is almost certainly a waste of your time to be reading this book. Go do something more important with your short time ahead.
For those still reading: Many folks in their late 50s and 60s—approaching retirement or already in it—have been coached by media and even industry professionals to think about their investing time horizons in a way that, in my view, is all wrong. Most people naturally think their investing time horizon ends when they retire, or when they stop contributing to their retirement funds, or when they start taking cash regularly from their portfolio. They think that’s when they should reduce most if not all volatility risk—getting “conservative.”

Longer Lives, Longer Time Horizons

In my view, that can frequently mean an unnecessary and sometimes serious reduction of quality of life later on. Why? Folks live longer than ever now, yet many invest, by and large, like they expect to die at age 70. Thanks to better nutrition and mind-blowing technological and medical innovations, folks just live to riper old ages today than even leading-edge thinkers fathomed 40 years ago. Recent IRS actuarial assumptions give today’s average 65-year-old a median life expectancy of 85—see Figure 3.1. That means half will live longer. But my guess is even longer. Why? Same reason! Within those 20 years there will be still more medical advancements we can’t fully fathom now. And today’s retiree is just overall more fit, active, and healthy than even a generation ago when we didn’t have so many “senior” sports.
So if you’re 65 years old, you don’t have a short time horizon. You have a long one! Longer still if you come from a long-living family and are in good health. Longer still if your spouse is younger! And longer still if your spouse is younger with great genes. Folks think reducing risk is smart—they’re being safe and “conservative.” (Note: There’s no set definition of what “conservative” means—but plenty of folks see it as holding a less volatile mix of cash and bonds.)
It’s true—having a portfolio full of Treasuries and cash won’t be as volatile. (Though Treasury bonds can and do lose value in the near term, as they did in 2009. See Bunk 1.) But volatility risk is just one kind of risk. There’s reinvestment risk—the risk that when your bonds mature later on, short-term rates will have dropped, dragging down your expected future returns. Or that long-term rates will rise, reducing the value of bonds you hold that haven’t matured yet.
Figure 3.1 Life Expectancy—Keeps Getting Longer
Source: Internal Revenue Service.
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There’s also opportunity risk—the risk of missing out on a better investment. Said another way, it’s the risk you run out of money because you failed to plan for a long enough time horizon and invested too “conservatively.” Volatility may make you feel bad in the near term, but if you die before your spouse and fail to plan for her (or his) time horizon, I promise you, you’ll seriously reduce her (or his) grieving period.

Aged Poverty Is Cruel!

I call investors who invest for too short a time horizon “wife haters”—because, first of all, ladies have longer life expectancies so they tend to end up with the dough in the end. And second, whether they mean to or not, when folks do this they’re likely setting their widows up for aged poverty—or at least being worth markedly less than they would have been if they had planned for the surviving spouse’s longer time horizon. And aged poverty is cruel. You don’t want to gamble that you and your spouse will be just average and live another 20 years—then find out you’re abnormally healthy, live another 30 years, and run out of money after 20. Plus, it’s later in life that you’ll want the additional comforts money can buy. Seen that way, investing too “conservatively” can be pretty darn risky and not conservative at all.
Most importantly, if you have a long time to invest (and most readers likely do), odds are in your favor when investing with stocks. Table 3.1 shows average returns for 1, 2, 3, and so on through 30 years for US stocks and bonds since 1926. The longer your time horizon, the better the odds stocks, historically, treated you better than cash or bonds—and by a wide margin. Simply, over 20 years, stocks almost never lag, and have averaged 908 percent returns to bonds’ 247 percent. Over 30 years, it’s no contest.
Most investors with a long time horizon—20 years or more—likely need at least some growth. And don’t forget about inflation’s impact! (Bunk 30.) Retirees who need their portfolios to stretch and grow to keep pace with inflation (or better) and provide some cash flow are doing themselves a disservice by removing all (or even most) volatility risk from their portfolios. Without risk, you can’t get growth. And without growth, your portfolio can be ravaged over time by withdrawals and inflation. To help your portfolio survive the long haul, you likely need to hold some portion of your portfolio in stocks, most of the time. Because, after all, 65-year-olds aren’t really old today and have long time horizons. The rest of their lives! And their spouses’ too. Who knows? Maybe even a second or third spouse.
Table 3.1 S&P 500 Returns Over Time
Source: Global Financial Data, Inc., S&P 500 Total Return Index for US stocks, USA 10-year Government Bond Total Return Index for US bonds from 12/31/26 to 12/31/09.
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