The Comfort of Conservative Investing: Balancing Peace of Mind with Long-Term Growth

At its core, financial analysis, and therefore some aspects of wealth planning, is all about the numbers. Utilizing spreadsheets, projections, knowledge of tax laws, historical assumptions, and many other empirical datapoints is foundational in constructing a solid wealth plan. But life is not a spreadsheet. Done well, we believe wealth planning involves weighing the objective calculations against the critical subjective factors of many life decisions. And it is not uncommon for the subjective to trump the objective as it is so difficult to put a price or a numeric value on a feeling. Realizing this, we believe it is our role as advisors to help clients balance these factors and make well-informed decisions by “doing the math” and then subjugating the numbers to the broader, and more important, real-life context of what really matters to a family. By no means does this discount the importance of financial analysis. Instead, it is recognizing the proper role for the numbers as just one factor, not the only factor, to help make the decision.

So this month we continue our series of articles that analyze many decisions clients face that require balancing the objective reality of financial analysis with the subjective value of helping clients sleep at night. We believe this integration is where the art of planning goes well beyond the science of finance. And while Google, and now ChatGPT (and other AI engines), can certainly retrieve and formulate data efficiently, they can’t look a person in the eye, read body language, notice tears welling up, or integrate family history to ensure financial decisions are aligned with a family’s core values.

For many approaching or in retirement, the portfolio becomes more than just a balance of stocks and bonds—it represents a cash flow lifeline and a potential legacy for future generations. So, it’s perfectly understandable to minimize anxiety, opting for stable returns and lower volatility. But what if that peace of mind comes at a cost—the cost of long-term financial opportunity? How can we balance these competing priorities?

We often meet with clients who have done all the right things: save diligently, live below their means, and hold a portfolio designed to support their goals and sustain their lifestyle for decades. Yet, when we discuss asset allocation, particularly the equity portion, many feel an emotional pull toward conservatism. Their instinct tells them to reduce or eliminate stock exposure in favor of a higher allocation to bonds and cash equivalents. This instinct is not wrong—it’s human. But it may not be optimal.

Much of this gut feeling is the result of a transition to retirement—an entirely new phase of life that requires an entirely new approach to investing. Done well, we must explore, then optimize, this tension between psychological comfort and financial growth. The most satisfying answer often lies in a well-researched and maintained balance of both.

At its core, the issue is this: a significant portion of affluent investors allocate far more of their portfolios to bonds and cash than traditional models would recommend, especially for their age or time horizon. This often stems from fear—of market volatility, the potential for a long and expensive health event, outliving their assets, or simply of the unknown.

These feelings aren’t irrational. In fact, they’re rooted in lived experience. Many retirees have vivid memories of the dot-com crash of 2000, the 2008 financial crisis, and the sudden pandemic downturn in 2020. They’ve seen the market’s downsides up close, and the scars run deep. When clients say, “I just don’t want to lose money,” they’re not quoting an investing maxim—they’re expressing a real fear and speaking from the heart. But while fear is a powerful motivator, it’s not a great investment strategy. That’s because avoiding market risk by overweighting fixed income can introduce another, quieter risk—erosion of purchasing power and foregone growth.

The data paints a clear picture. Over the last 100 years, the average annual return for U.S. large-cap equities (as measured by the S&P 500) has been 10% per year. Meanwhile, long-term US government bonds (as measured by 10-year Treasury bonds) have averaged 5.8% and cash equivalents like Treasury bills (3-month U.S. Treasury bills) have returned closer to 3%. These are nominal returns, of course, before backing out around 3.3% annual inflation over that time.

But averages can mask volatility. That’s where rolling return data offers deeper insight. (Rolling returns are a series of periods of the same length.) For instance, 1-year rolling US equity returns (using the S&P 500) have ranged from –41% to +60%, while 10-year rolling US equity returns have averaged 11.4%, with a much narrower range of –4% to +21%. By contrast, 10 Year U.S. Treasuries have been far more stable, with 10-year rolling returns ranging from 1% to about 15% and averaging 5.8% across most periods.

Perhaps most compelling: in 20-year rolling periods, U.S. equities have consistently posted positive returns—averaging 11.1%, with ranges between +5% and +18%. More than three-quarters of the time, 20-year U.S. equity returns exceeded 8% annually. 10 Year U.S. Treasuries, by comparison, remained in the modest but steady 2–12% range.

This reinforces the idea that while equities can be unpredictable in the short term, time has historically been the great equalizer, smoothing out volatility and favoring disciplined investors who can endure the inevitable volatility and stay the course.

Let’s be fair, there are legitimate advantages to a conservative allocation. The chief among them is predictability. Bonds and cash offer stable, more predictable returns. They don’t swing wildly in value.

Then there’s the subjective benefit of peace of mind. Some clients sleep better knowing they won’t wake up to headlines about a market drop slicing 20% off their portfolio and the anxiety of seeing those red numbers across the TV and the portfolio reports. For many, this calm is worth the tradeoff, the comfort of stability is not just a preference, it’s a priority.

Additionally, conservative allocations do need to be accounted for matching near-term and known liabilities, such as spending needs, planned gifts, or legacy assets intended to be preserved rather than grown. This can be accomplished with a laddered bond strategy to deliver reliable income with minimal surprises, especially if the cashflows tie closely to a detailed and accurate estimate of expected living expenses. With interest rates no longer at historic lows, fixed income is once again a reasonable contributor to a diversified plan.

Still, there’s no escaping the opportunity cost. A portfolio overly concentrated in fixed income forfeits the compounding power of equities. This may not be immediately visible, but over 20 or 30 years, the risk is missing the view of the “forest” for the “trees” and can create a massive gap in terminal value. When accounting for inflation, a persistent reality in any economy and a heightened risk with historically high government debt levels, the real returns of bonds and cash often fail to keep up with the rising cost of living.

Consider a retiree drawing 4% annually from a portfolio invested largely in bonds yielding 4–5%. At first glance, this looks sustainable. But if inflation averages 3% (or more), the real return is only 1–2%, which barely keeps pace and does not grow the portfolio. Factor in taxes, unexpected expenses, or longer-than-expected longevity, and the cracks start to show.

Beyond personal lifestyle needs, an overly conservative portfolio can have lasting implications for the next generation and beyond. Lower long-term growth may significantly reduce the eventual size of the estate, meaning heirs could inherit substantially less. For families with meaningful legacy goals, this erosion of generational wealth can be one of the more sobering tradeoffs of an under-allocated equity position.

Fortunately, this isn’t an all-or-nothing choice, and this is where conversations and knowledge of personalities and family dynamics are critical. In fact, some of the most successful retirement strategies incorporate enough fixed income to fund near- and mid-term spending needs, typically 5–7 years’ worth, but leave the remainder of the portfolio invested for long-term growth, assuming the volatility can be endured.

By matching the asset to its intended purpose, we aim to construct portfolios that are both emotionally and financially resilient. You don’t need to “swing for the fences” with a 100% stock allocation to grow wealth. But you should also avoid hiding in the safety of cash and bonds, hoping inflation and longevity won’t catch up with you.

Ultimately, the right allocation is the one a client can stick with in both good times and bad times. The biggest detriment to long-term portfolio performance usually isn’t volatility itself, it’s the behavioral tendency to sell low during market downturns and buy high during euphoric rallies. A disciplined, well-matched allocation provides the emotional stability needed to avoid these costly mistakes and stay the course.

Perhaps most importantly, achieving this balance requires the guidance of a wealth advisor who can map out long-term cash flow projections. With proper modeling, clients can confidently align their spending today with their goals for tomorrow—maximizing quality of life now while still supporting legacy and philanthropic intentions. An informed plan brings clarity to complex decisions and allows clients to live with intention and peace of mind.

Investing is never purely rational. It’s a deeply personal process influenced by our experiences, family history, fears, and hopes for the future. For some, a conservative portfolio provides the emotional security they need to enjoy retirement without anxiety. It’s hard to argue the value.

However, it’s important to recognize that emotional comfort often comes at a financial cost and it’s our role to enumerate and articulate this dynamic. In working with families, we aim to strike a balance—crafting an allocation that honors both the head and the heart. The key is not to choose between growth and peace of mind but to design a plan that offers enough of both. That way, you’re not just protecting your portfolio, you’re protecting your future and your legacy.

• Should We Pay off the Mortgage Before or In Retirement?
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• Annuities: Peace of Mind for a Price