Conventional wisdom encourages investors to decrease the amount of stocks in their portfolio as they near retirement. But what happens when the “bonds are better” axiom no longer rings true?
In our low interest rate environment, the yields of bonds and other fixed income investments like Treasuries and CDs have plummeted. With the purchasing power of bonds considerably eroded, retirees relying on these investments struggle to beat inflation and are forced to draw more from their nest egg to cover expenses.
By contrast, stocks can offer superior portfolio returns, give investors a steady income through dividends and provide the added benefit of increasing share value. A greater allocation of stocks means that retirement savings can last longer and investors can enjoy a higher withdrawal rate. And in downturns, cash reserves and investments in quality growth companies that succeed in a wide variety of markets can help ensure rapid recovery.
Put simply, the overweighting of bonds has under delivered. Enlisting the assistance of a financial advisor who follows a conservative growth strategy can help investors navigate through heightened volatility and make sure their retirement nest egg goes the distance.