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The 7 Deadly Retirement Sins, Part 3

Sin #3

Too Conservative or Too Aggressive




Although this point was alluded to in sins #1 and #2 of our list, it is such a common mistake that it must stand alone.  Balance must be a theme in your investing to avoid the error of being overly conservative or overly aggressive. 


Conservative:  The people that tend to err on the side of being too conservative do so because they so concerned about short-term volatility.  It is very important, when investing, to focus on the long-term impact of today’s decisions.  Obviously, the market fluctuates in the short-term.  In fact, those fluctuations can be very large at times…50% or more.   However, there has never been a 15 year period when the stock market has been down.  In fact, there have only been two 10 year periods in the last 100 years where the market investor has lost money. 


The point of all of this is that in order to avoid the slow erosion of inflation, you must have a fair amount of stocks in your portfolio.  This will provide you with your long-term growth, even if you have the short-term volatility.    


Aggressive:  A portfolio that is too aggressive in retirement is the other extreme.  It is not uncommon in my business to talk with clients who are retired in their mid 60’s and have 100% of their portfolio in oil or Chinese stocks because, as I’ve heard before, “I think they are set to move higher”.  This is not only speculation; it is also an absurd investment strategy during a period when you cannot afford to make mistakes. 


A similar, yet less extreme mistake is when a retiree has 100% of her assets in the stock market.  Many people get caught up in a strong bull market and can’t understand why it is prudent to own bonds when they only pay 5% while stocks have been dishing out 25% annual returns.  This is common “bubble” mentality. 


Solution:  It is extremely important that an investor in retirement avoid becoming too excited or too depressed about an asset class.  All asset classes go through boom and bust cycles and becoming too aggressive during a boom cycle is a sure recipe for large losses later.  Remain balanced with the appropriate amount of risk for your age and risk tolerance.

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