Staying too "safe"​ can be a mistake

Stacy Schill |

Recent interest rate reductions by the Federal Reserve have caused many banks to lower their rates paid on money market checking and savings accounts in some cases to levels of 1% or less. As financial planners we find many people do not realize that keeping money “safe” in a low interest-bearing bank account can significantly reduce one’s probability of achieving their retirement goals. The reason for this is capital in an account earning 0-1% is not growing adequately to keep up with inflation. We estimate a conservatively allocated portfolio, say 40% equity, 60% fixed income, could earn around 5% average annual return over a long-term horizon. By being willing to accept a little more volatility in their portfolios, retirees can greatly improve their chances for achieving their retirement goals. Running out of money without meeting one’s goals is the real risk, not the volatility associated with a slightly more aggressive investment portfolio. #financialplanning #interestrates #rateofreturn