Experts Warn 86% of High-Risk Retirees Fail Vital Diversification Test Raising Serious Financial Concerns

Key Takeaways In a recent survey of over 1,000 investors, about 86% of high-risk retirees failed to meet a basic asset diversification benchmark. Financial experts caution against overly relying on cash and bonds to avoid market risk and instead recommend balancing cash, bonds, stocks, and other investments for long-term growth. Dynamic withdrawal strategies and adjusting asset allocation are key to managing market risk in retirement. As retirement nears, many investors shift their focus to minimizing risk , often by pulling away from stocks in favor of safer assets like bonds and cash. However, a new study reveals that this strategy may leave retirees dangerously exposed to a different kind of risk: not having enough long-term growth. According to research from Jackson National Life Insurance Co., a staggering 86% of high-risk retirees fail the crucial test of proper diversification. Experts warn that retirees who seek safety in bonds and cash may be overlooking the larger risks: inflation and the possibility of outliving their assets.Igor Suka / Getty Images As experts caution, this type of overreliance on bonds and cash can undermine long-term retirement security, making it essential for retirees to strike a balance by including growth assets like stocks in their portfolios. What the Diversification Test Reveals The Jackson study assessed investors’ exposure to market risks based on five key financial benchmarks : spending, saving, cash allocation, stock-bond split, and asset diversification. Those who met fewer than two benchmarks were categorized as high-index, or the most vulnerable to market risk. How Many Investors Are High-Risk? According to the study, which surveyed over 1,000 investors, 22% were classified as high-risk, compared to 57% classified as medium-risk, and 21% as low-risk. To test diversification, the study examined whether investors held assets in at least four of five categories: stocks, bond funds, cash, bonds, and other investments, and 86% of high-risk investors failed to meet this basic benchmark. Instead, many have allocated far too much of their portfolio to cash or bonds, leaving them vulnerable to inflation and outliving their savings . The study found that 49% of these retirees hold nearly half their assets in cash, well above the recommended 20% of assets. Why Retirees Struggle With Proper Diversification Experts warn that retirees who seek safety in bonds and cash may be overlooking the larger risks: inflation and the possibility of outliving their assets. “Most retirees think they’re avoiding risk by piling into bonds and cash,” says Ryan Graves , founder of Bemiston Asset Management. However, as inflation eats away at the value of cash and bonds, “excessive cash and bonds won’t save you-it guarantees you’ll fall behind.” In fact, Graves says the most common mistake he sees is equating safety with cash . Meanwhile, other investors similarly seeking safety may overconcentrate in dividend stocks and bonds, becoming too focused on current income instead of growth, he adds. Malissa Marshall , founder of Soaring Wealth, observes another issue in her clients’ portfolios: Many accumulate a “hodgepodge” of investments over time without understanding the...

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