Your Portfolio In (Or Near) Retirement

This post is just as much for clients as it is for colleagues and competitors. Below I’ve recreated a conversation I often have. Consider this a different way of articulating that risk and volatility are not the same thing.

Please note: the em dashes are mine.

“I’m about to retire. I can’t afford to take on too much risk anymore. Let’s pare back the volatile stuff as much as we can.”

“What exactly do you mean by risk?”

“You know, my account dropping in value.”

“But your account has dropped in value tons of times. Think the Great Financial Crisis, Christmas of 2018, the Covid Crash, 2022, the beginning of 2025. What happened after all those drops?”

“The market recovered.”

“Exactly, the market recovered. And your investments increased in value, oftentimes by a lot. Crises end. Even when they look like they won’t—or can’t.”

“I get what you’re saying, but I’m going to need to live off this nest egg for the next 30+ years. If the market tanks, I could lose too much.”

“The end of the world only happens once. You’re appropriately diversified, and history is on our side.”

“I know. But what if there’s a bad crash right as I start to draw income?”

“That’s why we’ve earmarked at least two years of what that income will be in investments that either have no risk or low risk. We can bump it to three or four years if that helps.”

“But what about the rest of my investments? They’ll get hammered.”

“They will. And that’s the point.”

“That’s the point?”

“We call it a risk premium for a reason. You take on risk, and because you’re appropriately diversified, you get rewarded for it. Put another way, when the market gets hammered in the short term, you’re paying the price of admission for long-term returns. The long-term returns that are far greater than what you’ll earn in boring, low-risk stuff. You know, the stuff you want me to allocate your portfolio to.”

“I just can’t handle that volatility.”

“You can, though. You’ve done it for your entire investing career.”

“But I’m retired now!”

“But we’ve earmarked the income you need in things that aren’t volatile. You’re not drawing down your entire investment account in the first month. Just a tiny portion of it. This needs to last 30+ years. What’s riskier? Enduring volatility or running out of money before you die?”

“It depends.”

“It depends on what?”

“It depends on how the market is performing at the time.”

“Right. When the market is on a tear, you won’t worry about running out of money. When it’s taking it on the chin, you will—and probably a lot. Is that fair?”

“Yes.”

“Excellent. Now let’s zoom out a bit. Boring, less volatile investments have grown at a rate of around 3% after inflation long term. Stocks, which are volatile, have grown at around 6%. That’s what history tells us, and it’s all we have. The future might look a lot different than the past, but history is all we have. Would you rather be invested in something that grows at 3% or 6%?”

“Obviously 6%, but I don’t want that volatility.”

“But the volatility shouldn’t be a factor. We set aside what you’ll need in no-risk stuff, remember? And that’s the point. You don’t retire from volatility; you retire through it.”