Pre-retirees: are you taking too much risk?

Having amassed the assets they need for a comfortable retirement, pre-retirees should transition a portion of their portfolios into safer investments, says Christine Benz

Christine Benz 8 April, 2019 | 4:00PM

I've been thinking a lot about the "fear/greed cycle" lately, specifically the "greed" part.

The fear part is that investors often get excessively spooked in periods of extended market weakness, switching to cash and bonds and reducing their ability to participate in risky assets' eventual recovery. This happened during and in the wake of the last market downturn; even after the market started to recover in early 2009, bond funds continued to receive the lion's share of new fund flows.

In the caricatured version of the fear/greed cycle, avarice kicks in at the opposite inflection point--after the market has already gone up a bunch. Having missed the biggest stretch of outperformance, investors pile into the market segment that has performed best, even if it's grossly overpriced. We saw it with the dot-coms in the late 1990s and in early 2000, and we saw it again with real estate in the mid-2000s.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Amazon.com Inc2,410.39 USD-0.47
Netflix Inc419.89 USD1.23

About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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