Many Americans may be investing too conservatively to meet their retirement goals, according to the 2016 Wells Fargo Retirement Study.
The annual study is put together by Harris Poll and includes the responses of more than 1,000 workers and 250 current retirees. Talking through the results with PLANSPONSOR, Joe Ready, executive vice president and director of Wells Fargo Institutional Retirement and Trust, said he is always a bit puzzled by the subset of investors who choose to get involved in the markets, but who go with very low-return potential investments to protect themselves from anticipated downside risk.
“Almost six in 10 investors tell us they focus more on avoiding loss than maximizing the growth of their investments for retirement,” Ready said. “Interestingly, this does not vary much across ages: 59% of 30-somethings, 62% of 40-somethings, 58% of 50-somethings, and 52% of those 60+ agree with that approach.”
For illustrative purposes, the research report considers what $10,000 invested in two different ways 40 years ago might look like today. Using historical data, one can see that a portfolio allocation of 70% stocks and 30% bonds would have grown to as much as $581,295 from January 1, 1976 through September 30, 2016. For the same time period, $10,000 invested in 30% stocks and 70% bonds would have grown to $336,715, according to the Wells Fargo analysis.
“This simple example makes it clear that choosing the right mix of investments relative to your time horizon and risk tolerance is of critical importance when it comes to being well-prepared for retirement,” Ready said. “In addition to saving enough, two key actions that can help position a person for success in retirement savings are to start early and make sure you’re allocated according to an investment plan aligned with your goals, avoiding emotional reactions to market news and making intentional, informed decisions about investments in your retirement planning.”
Ready was quick to stress that taking more risk does not mean being reckless.
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