A new study from Jackson National Life Insurance Company and the Center for Retirement Research at Boston College finds many Americans nearing or in retirement are more exposed to market risk than they realize.
The new joint research introduces a Market Risk Vulnerability Index, which evaluates investors’ financial positioning across spending, savings, cash allocation, stock-bond split, and diversification.
Based on that index, those who are risk-averse often end up with portfolios that are less resilient over time.
The latest findings from Jackson show that investors who avoid risk tend to hold nearly half their portfolios in cash, more than double the recommended 20% threshold. This approach, while seemingly cautious, can limit long-term returns and leave investors vulnerable to inflation and missed market gains. Only 14% of high-index investors meet the recommended asset diversification benchmark.
Glen Franklin, assistant vice president of research, RIA and lead generation strategy for Jackson National Life Distributors, said the findings “challenge the traditional notion that avoiding risk equates to financial security.”
He added that the research “underscores the importance of aligning financial behaviors with long-term goals and highlights the value of working with a financial professional to help build resilience against market volatility.”
The study found that 72% of low-index investors work with a financial professional, compared to just 43% of high-index investors.
The report cautions that traditional diversification alone may not protect portfolios during systemic market events, such as the 2008 financial crisis or the 2020 market crash. In those scenarios, nearly all asset classes can decline in tandem, suggesting a need for additional protective measures like annuities or hedging tools.
Recent research from Charles Schwab also points to an increasing sense of caution among retirement savers.
Schwab’s latest survey of 401(k) participants found that only 34% feel very likely to reach their savings targets, down from 43% last year.
Inflation remains the top obstacle among respondents, with 57% of respondents citing it as a roadblock to a comfortable retirement, and just 34% of participants saying they're likely to hit their savings goals.
All in all, the average worker in Schwab's survey expected to retire at age 66, and estimate they'll need a $1.6 million nest egg to get them through their projected 22-year retirement timeline.
Still, Schwab found 401(k) plan participants are being judiciously active, with 23% reporting they've tweaked their portfolios in response to inflation and volatility. Among those who made changes, four-fifths (79%) said they're leaning more toward caution.
More importantly, Schwab said retirement savers are staying the course on contributions, with just 11% saying they've dialed those down due to economic conditions.
“Inflation and market volatility remain top of mind, which can make it difficult to develop a long-term retirement strategy,” said Lee McAdoo, managing director at Schwab Retirement Plan Services. “It’s encouraging to see that most savers are prioritizing consistency in terms of their contribution rates and are largely avoiding dipping into their retirement savings.”
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