A Conservative Path To Retirement Investing: Financial Advisors' Daily Digest

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By SA Gil Weinreich :

A financial advisor I know with professional experience in three countries once pointed out something that I think is not well known in the States - to wit, that Americans are aggressive investors. In the U.S., it is generally thought that people with a long timeframe, and sometimes even those with relatively shorter ones, should be all or mostly invested in stocks, whereas abroad something like a one-third allocation to equities is quite common.

As long-term readers know, I favor this more cautious stance, though of course there are many potential ways to invest conservatively for retirement. On today's Seeking Alpha, financial advisor Nicholas P. Cheer details an approach he favors of investing in zero-coupon bonds . I like his premise, though I'm not convinced of his means. Let's hear him out, starting with the premise:

Far too often I encounter people who think their retirement account is a tool to allow them to speculate in stocks. No wonder there are those incorrectly saying that the 401(k) experiment has failed…The purpose of the retirement account is to save money for the future. There is a great difference between investing and saving. The idea behind saving is that you want the money back, with a reasonable rate of return such that you can replace your income in your retirement years. Unfortunately, Americans are not doing well at saving for retirement, with 56% of Americans have saved less than $10,000 for retirement. The first step to change this situation is to increase the savings rate of Americans, which can only be done once they are out of debt.

Cheer deserves credit for his emphasis on this fundamental point. Successful investing is based on disciplined saving. I would guess that those who do not wish to put in that effort are the same ones most apt to take wild gambles in their 401(k), hoping the market's magic will do the work for them.

So far, so good. But zero-coupon bonds? Cheer points out that these Treasury strips have actually outperformed large-cap stocks over the past decades. And, more than just that, he notes:

Currently, we have equities at the second highest valuation ever. We have geopolitical risk everywhere, and more importantly, we have a world saturated in debt at both the government and household levels.

In other words, he argues that expected return for stocks in the coming decade is low. That is indeed what the P/E-based forecasts say, though I still find it difficult to prefer "safe" Treasuries to stocks. I'll tell you why with Cheer's own words - on the parenthetical topic of lump sums vs. payments:

Whenever I am asked to run a simulation on whether an individual should take a lump sum on their pension my answer is generally yes, for a number of reasons. First and foremost, you take possession of the asset which is generally a good thing in this world where virtually nothing is guaranteed.

I realize that Treasuries are assumed to be near-risk-free assets, but I part from conventional wisdom on that for a simple, practical reason: The Treasury can make payments on its bond debt only because it receives revenues from the companies that make goods and services that people need and want, and also collects taxes from the people employed by those companies. Yes, individual stocks bear greater risk than a Treasury bond, but a diversified portfolio of stocks over a long period of time strikes me as a safer bet than bonds, whose interest is taxed at the higher ordinary income level, whose returns are lower than stocks on average and which currently bear historically low yields.

Despite these differences, I do think Cheer's article serves to demonstrate that the rate of return on investments should be viewed as less important than the growth that is assured by greater effort at saving.

Your thoughts, as always, our welcome in our comments section. For now, here are other financial advisor-related links:

See also The Stars Group: Price Is Down, Should You Buy? on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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