Stocks = Top Returns (Usually)

Even if you believe, as I do, that financial advisors are generally much too conservative in their advice, overestimating the risk that stocks will drop in value and underestimating the risk that “safer” investments will fail to grow enough, this graph in the Times makes the point very dramatically. Here’s what the caption says:

Over the last century, a retirement portfolio of 100 percent stock has out-performed bond or stock-bond mixed portfolios in all but three years: 1932, 1941 and — unsurprisingly — this year so far. Stocks are the better bet, clearly, but the real winners are those workers who are able to tap into those retirement funds at market peaks, like 1999, when the rate of return on stocks was at 10 percent. Workers who retire this year are not quite so fortunate.

The caption, however, repeats another outmoded financial planning cliché: the assumption that retirees will move their retirement money into “safe” bonds or money market funds when they reach 65. With savings at record lows, and retirement lasting twenty or thirty years, even a retiree is a long-term investor. I would bet that many, if not most, retirees, are keeping a sizable chunk of their savings in the stock market.