It's one of the most common questions people type into Google once they hit 50: should I be taking less investment risk? It feels like a reasonable question. But according to Chief Investment Officer Meghan Pinchuk, it may be the wrong one entirely. In this episode of Financial Commute, Meghan and host Chris Galeski unpack what drives the right level of investment risk at any age, from longevity and sequence of returns risk to the emotional factors that quietly derail even well-built plans. Spoiler: age is further down the list than most people think. Questions This Episode Answers Should I take less investment risk now that I'm 50? Not necessarily, and maybe not at all. Age by itself is not the right variable. The more useful question is: how close are you to the spending phase of your life, and how long does your portfolio need to last? Someone retiring at 65 with a life expectancy well into their 80s or 90s has a 25 to 30 year window their money needs to cover. A portfolio that's too conservative early in that window may not grow fast enough to last the distance. The old model of shifting heavily into bonds at retirement was designed for a world where retirement lasted 10 or 15 years. That world is largely gone. What is the biggest investment risk people over 50 actually face? Two things come up repeatedly in this conversation. The first is behavioral risk: abandoning a sound investment strategy during a market downturn. Meghan and Chris point to 2008, 2020, and 2022 as examples of periods when investors who panicked and sold missed the recovery entirely, permanently reducing their long-term returns. Research consistently shows that retail investors earn significantly less than the indices they invest in, largely because of this pattern. The second is sequence of returns risk: being forced to sell assets early in retirement, when prices are depressed, in order to cover living expenses. That combination, selling low and losing compounding time, is what genuinely harms long-term plans. What is sequence of returns risk, and why does it matter so much at retirement? Sequence of returns risk is the danger of experiencing a major market decline right at the moment you transition from accumulating assets to spending them. If your portfolio drops 30 or 50 percent in the first years of retirement and you're selling shares to cover expenses, you lock in those losses and shrink the base that would otherwise recover and compound. The timing matters as much as the magnitude. A 50 percent decline early in retirement is far more damaging than the same decline ten years in, when you've already drawn down a portion of your portfolio and have fewer assets exposed. How does longevity change the risk equation for people over 50? Significantly. Earlier generations could plan for a retirement of 10 to 15 years. Today, a 65-year-old retiring without a pension may need their savings to last 25 to 35 years. That length of time changes almost everything about portfolio design. It means you likely need more growth assets, not fewer, to outpace inflation and sustain your lifestyle. It also means the risk of running out of money may be a greater threat than the risk of a temporary market decline. At the same time, most of this generation is the first to fund retirement entirely on their own, without a pension providing a guaranteed income floor. How do advisors think about how much risk to take in a portfolio? Meghan and Chris break it into two questions. First, how much growth do you mathematically need? Given your expenses, savings, and expected retirement length, what return does your portfolio need to deliver for your plan to work? That's a numbers question. Second, what is your actual emotional tolerance for volatility? Someone who needs strong returns but cannot psychologically handle large drawdowns is in a difficult position that pure math can't resolve. A good financial plan has to account for both, because a strategy you abandon in a panic is worse than a more conservative strategy you can stick with. What is the bucket approach, and how does it help manage risk in retirement? The bucket approach divides your portfolio by time horizon and purpose rather than treating it as a single pool. Bucket one covers your emergency fund and near-term expenses, held in stable, liquid assets that won't lose significant value in a downturn. Bucket two generates the income you need to cover living expenses over the medium term. Bucket three is your long-term growth engine, invested in equities and other higher-volatility assets. The practical benefit: when markets fall, you draw from bucket one rather than selling growth assets at depressed prices. You don't need to react emotionally because you already have a structured plan. What if I take less risk and miss out on a strong market run? This is a real risk that doesn't get discussed enough. If you reduce your equity allocation because you feel you don't need the growth, and then markets rise 20 or 30 percent over several years, the emotional pressure to chase that return can cause investors to buy back in at much higher prices than they would have paid originally. Meghan calls this FOMO risk, and it's worth running through before you make changes. If the market keeps running and your portfolio doesn't keep pace, what would you actually do? Being honest about that in advance leads to a more realistic allocation decision. When is the right time to buy more stocks? In theory, the best time to buy growth assets is when they've gotten significantly cheaper, during recessions and sharp corrections. In practice, almost no one does it. Chris notes that across market downturns in 2009, 2011, 2018, 2020, and 2022, very few clients called eager to buy more stocks. The ones who did are, in hindsight, easy to identify as the ones who made the best long-term decisions. Understanding this tendency ahead of time, and building a plan that doesn't rely on making courageous decisions in the middle of a crisis, is one of the most practical things a financial advisor can help with.
