Personal Wealth Management / Expert Commentary

Fisher Investments’ Founder, Ken Fisher, Debunks the Belief Retirees Must Be “Conservative”

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher, reviews a chapter in his best-selling book, Debunkery, which challenges conventional wisdom that retirees should have “conservative” portfolios. Ken says many investors see a conservative approach as having more exposure to “less risky” investments—such as bonds and cash—and less exposure to stocks. However, thanks to ever evolving medical advancements, Ken says individuals are living longer than ever before—meaning this “conservative” approach may actually be riskier than many think.

As Ken explains, it can be easy for investors underestimate their time horizons and the growth required to sustain their lifestyle in the long-term. While traditionally “conservative” portfolios may be less volatile in the short-term, Ken suggests that increased stock exposure may help investors—and their spouses—avoid running out of money later in life. 

Transcript

Ken Fisher:

The fact is, if you've made it to 65, you probably not necessarily, but you probably have a long time to live. And it's probably going to get longer too, because in our lifetimes, medicine keeps improving, medical science keeps improving. And in fact, probably in those 20 years from 65 to 85, it'll keep improving, extending the time horizon out even further.

This month I'm on a cover bunk number three. Bunk number three is retirees should be conservative. Now. What do I mean when I say that's bunk? Well, what I mean is that. What does conservative mean to you? Well, to most people it means things like not having a lot of risky investments as they see it, and instead having very safe investments. And the safe investments that they see or think about are like bonds and cash a lot.

The fact of the matter is, this concept in our culture started and derived from the days of the American worker, when typically the American worker would work until they were about 65 and then on average died when they were about 70, which is what the little chapter on, on, on this in bunk number three says. But over time, tied to better food, better water, better health care in general.

Medical advances post 65 age retirement people have been living longer and longer and longer. And based off of life insurance estimates. If you've made it to 65, remember the way life insurance estimates work? The 45 year old isn't expected to live as long as the existing 65 year old is to total age, because some people, at 45, die before they ever get to 65. But according to insurance estimates, the average person who's made it to 65 is going to make it to 85.

Now think about that for a second. That means half of them are going to make the longer. F make it the less. But what does that mean? It means. Well, the investor often thinks I should be conservative because I don't have long to live the way people used to not have long to live. But the fact is, if you've made it to 65, you probably not necessarily, but you probably have a long time to live. And it's probably going to get longer too, because in our lifetimes, medicine keeps improving, medical science keeps improving.

And in fact, probably in those 20 years from 65 to 85, it'll keep improving, extending the time horizon out even further. I want you to think about this another way. I remember when I was young and people just. Drank more cars weren't as safe. If you got an accident in a car, you were in much more danger than if you get an accident in a car today. I mean, when I started driving was when seatbelts were first coming into use, much less three point harnesses that came later.

Uh, or, you know, the shoulder belt. Excuse me? That went with the seat belt. But in all kinds of ways. The features of our lives have moved toward safety. Now, the fact of the matter is. People kill themselves unintentionally at any age. The average life expectancy has been falling because young people do a lot of stupid stuff.

I'm just going to tell you, your life expectancy is going to fall if you start doing illegal street drugs. And if you drink too much, and if you do a lot of other personal behaviors, you know that it's not my job to tell you about all that stuff. What I am going to tell you is that the average person is going to live longer than they think they're going to live. And they have a long time horizon anyway, and it's going to get longer. And it may not for you, but it will for most. And therefore you got a pretty long time horizon. You may have a longer one.

Still, if you've got a spouse who's maybe a little bit younger than you and maybe actually has better genes than you in terms of longevity, and maybe takes better care of himself or herself than you, and then that second to die becomes what you should be targeting. That's longer still. So what happens when you look out at these 20, 25 and 30 year time horizon? Once you get to those. Nothing beats stocks among liquid asset classes.

It's just impossible to find periods of time where the 20 or 30 year returns of those asset classes were worse than other liquid asset classes. So what am I saying to you? What I'm saying to you is if you say to somebody you're 65 and you've got 25 years ahead of you, probably Mr. Jones, and you should have a very heavy stock orientation.

They say that's not conservative. And I'll say, yes, it is. It is conservative. What's conservative is realizing you're likely to live longer and that stocks will do better. Now let me go back to a different point. So there's one time I did a column that was kind of on this topic. And, and it basically was to make the point that. If you've got a spouse younger than you are, with better genes going to live longer if you run his or her account like.

You run your own with your shorter time horizon. You won't have as big an equity position as. The second to die should have and the second to die. Likely ends up poorer than would be the case otherwise. And that's pretty cruel thing to do to that person. But you really want to think about that second to die longer time horizon.

Don't let yourself think. Conservative is being safe with fixed income and other supposedly safe investments. The volatility of stocks is not a function of safety. It's just what it is. Stocks in the long term return more than. Non levered real estate. More than commodities, more than bonds, more than cash, more than cryptocurrency. On and on and on. And if you've got a long time horizon, if you're 65 and about to retire. And you're married and you're in good health, and particularly if you're in good health relative to the health of your parents were in at the same age. You got a long run and you better use stocks to take advantage of it.

Thank you very much for listening to me. I very much hope you enjoyed this video as part of my series on debunking Common Market Myths. To watch more videos like this, click the link on the screen and make sure to subscribe to Fisher Investment's YouTube channel. Thanks so much for listening to me.

A series of disclosures appears on the screen “Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”

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