While most Americans have retirement goals of some kind, far fewer are actually financially prepared for retirement. According to NerdWallet, 60% of Americans don’t have a retirement account, and even among individuals age 55-64, the median retirement savings is only $185,000.
For some, a lack of knowledge on how to invest can keep them from investing altogether. Others choose high-risk investment strategies that don’t always deliver long-term dividends, especially in a volatile market.
I recently interviewed Fulton Brock, president of Brock Asset Management, who recommends utilizing conservative investment strategies as the best bet for retirement. Here’s a closer look into his insights.
Retirement Investments Must Focus On the Long-Term
“The biggest thing to consider with retirement investments is that they must inherently be focused on long-term outcomes,” Brock says. “Markets go up and down throughout the year, but the investors who stay committed to their investment strategy find that they will ultimately be rewarded. Consistently investing toward retirement, regardless of outside factors, enables you to gradually build up the retirement savings you need, as opposed to trying to play the market.”
One way that Brock recommends achieving this is through a strategy known as dollar cost averaging, in which investors automatically invest the same amount of money in a target share or portfolio at regular intervals (such as monthly). This strategy doesn’t focus on changes in share prices, as it is instead a commitment to investing a consistent dollar amount each month.
“Dollar cost averaging takes the emotion out of investing decisions,” Brock explains.
“If you’re not careful, geopolitical incidents, election cycles and other news events can compel you to try to time the market. But more often than not, this leads to high-risk decisions that backfire and hurt your retirement plans. Dollar cost averaging keeps you committed to a consistent goal, and can even lower the average price per share you pay in the long run.”
Efforts to time the market are usually focused on short-term gains, a mindset that isn’t applicable to a long-term goal like retirement. With an approach like dollar cost averaging, investors inherently train themselves to take a long-term outlook with their investments and their potential gains. This is why dollar cost averaging is frequently used for 401(k) plans and other retirement accounts such as IRAs.
A conservative long-term approach also generally yields good returns. Even with the Great Recession and a few years of negative annual returns in the early 2020s, the average annualized return rate for the S&P 500 stood at 10.20% from 2003 to 2023.
The Dangers of High-Risk Retirement Investments
To Brock, the fact that stock indices like the S&P 500 do occasionally experience years of negative returns further emphasizes the importance of a conservative investment strategy.
“Highly volatile investments like cryptocurrency can be appealing for those trying to time the market for short-term gains, but they bring unnecessary risk to your retirement accounts,” he says.
“For example, bitcoin has seen periods where it has undergone massive spikes in value, but also times when it lost more than half of its value. If that was your primary investment for retirement and it experienced that type of loss right before you were set to retire, it could significantly disrupt your retirement plans. A diversified portfolio that avoids high-risk investments ensures your money will be there when you need it.”
As a financial advisor, Brock advises clients to make investments focused on the type of lifestyle they want to enjoy during retirement. Most experts say that retirees need between 70 and 80% of their current income to live comfortably. Of course, some people have more ambitious retirement goals that actually increase their expenses, such as world travel.
Medical expenses during retirement can also play a major role in retirement savings, with Investopedia estimating that the average 65-year old couple will incur $315,000 in healthcare expenses during retirement. Losing half the value of one’s retirement investments shortly before incurring a major medical expense could put retirees in dire financial straits.
While more conservative investment portfolios can also experience their share of ups and downs, declines in value are unlikely to be comparable to the steep drops often experienced by more volatile investments. This is especially true when investors utilize a diverse portfolio that includes a broad range of companies and industries. Even when an individual company or industry experiences a drop, the continued growth of other areas will help offset the losses.
Preparing for Your Ideal Retirement
“The ideal retirement ultimately looks different to each individual,” Brock says. “This naturally requires that we tailor the investment strategy to their unique financial situation and what they hope their retirement looks like. But across the board, by sticking with more conservative investment strategies, we can ensure that their vision for the future actually becomes a reality.”
Regardless of the amount someone is able to invest toward retirement, Brock recommends beginning those investments as early as possible — and even if you’ve put off saving for retirement in the past, starting now can still make a difference. With a conservative approach that delivers predictable returns, you can become better prepared for your Golden Years.
Jesse Pitts has been with the Global Banking & Finance Review since 2016, serving in various capacities, including Graphic Designer, Content Publisher, and Editorial Assistant. As the sole graphic designer for the company, Jesse plays a crucial role in shaping the visual identity of Global Banking & Finance Review. Additionally, Jesse manages the publishing of content across multiple platforms, including Global Banking & Finance Review, Asset Digest, Biz Dispatch, Blockchain Tribune, Business Express, Brands Journal, Companies Digest, Economy Standard, Entrepreneur Tribune, Finance Digest, Fintech Herald, Global Islamic Finance Magazine, International Releases, Online World News, Luxury Adviser, Palmbay Herald, Startup Observer, Technology Dispatch, Trading Herald, and Wealth Tribune.