Renowned investor Ken Fisher has a message for retirees and aspiring retirees that might raise a few eyebrows: The commonly sought-after goal of “capital preservation” could actually be detrimental to your financial well-being in the long run.
Fisher, known for his candid approach to investing, recently argued in a New York Post article that the focus on preserving capital, often seen as the holy grail of retirement planning, conflicts directly with the growth necessary to sustain a comfortable lifestyle throughout retirement.
“Growth and true capital preservation can’t coexist in the short run,” Fisher contends. He asserts that the “safe” investment strategies often favored by retirees typically fail to keep up with inflation, gradually eroding the purchasing power of their savings over time.
The crux of Fisher’s argument centers on the role of market volatility. While many investors perceive volatility as a threat, Fisher views it as an essential ingredient for long-term growth. I agree with him.
Embracing Volatility
Citing historical data, Fisher points out that U.S. stocks have demonstrated a pattern of growth, rising in 63.1% of calendar months and 73.5% of calendar years from 1925 to 2023. This trend, he argues, underscores the potential rewards associated with embracing market fluctuations.
“Eliminate the [downside] and the [upside] also disappears,” Fisher states. He posits that attempts to completely shield oneself from market volatility usually result in meager returns that barely outpace, or even lag behind, inflation.
Fisher takes a particularly critical stance on financial products promising both growth and capital preservation, labeling them “phony baloney.” He cautions investors against being seduced by the allure of products that claim to offer “upside with no downside,” particularly during turbulent market conditions.
Instead of chasing the illusory promise of risk-free growth, Fisher advocates for a more pragmatic approach to retirement investing. He emphasizes the importance of understanding that short-term volatility is the price of admission for long-term growth. For those unable to tolerate market fluctuations, he suggests reevaluating their financial goals, savings rates, and future spending plans.
Fisher’s advice comes at a time when many retirees are grappling with economic uncertainty and market turbulence. While the yearning for stability is natural, Fisher’s perspective serves as a reminder that there are no guarantees in investing and that the pursuit of growth often necessitates embracing, rather than avoiding, market volatility.
Navigating the Long Haul
As retirement horizons expand and living costs continue to rise, Fisher’s message resonates with an important truth: There are no foolproof strategies, and achieving long-term financial security often requires a willingness to accept some degree of risk.
Fisher’s perspective offers valuable insights for retirees and aspiring retirees seeking to navigate the complexities of the financial landscape. It challenges the conventional wisdom of capital preservation, urging investors to adopt a more balanced and strategic approach to building and maintaining their retirement nest eggs.
As always, it’s important to consider your individual risk tolerance and financial goals before making any investment decisions. However, Fisher’s perspective serves as a powerful reminder that playing it too safe could ultimately cost you more than you bargained for in the long run.