Focusing on only one risk
Except perhaps for extremely frugal savers who get paid handsomely and maximize their contributions, most people need to get substantial returns on their portfolio to arrive at retirement with a decent-sized pot of money. That means investing in stocks is prudent for most.
A recent survey by mutual fund company Franklin Templeton found that more than a third of long-term investors, 37%, believe they can get by without investing in stocks at all.
Surprisingly, young people were most likely to say they plan to avoid stocks.
"Over 56% of 25- to 35-year-olds believe they can reach their investment goals without investing in the stock market," says David McSpadden, senior vice president of Global Client Marketing for Franklin Templeton Investments.
Avoiding stock market risk increases other types of risk, however. For instance, there's longevity risk, or the risk of outliving your money.
"You shouldn't think of short-term (certificates of deposit) and others as being risk-free assets. If you invest in CDs, you may have a guaranteed return of capital; but you don't have what is arguably more important, which is a guaranteed return on capital," says Webb.
People are "very sensitized to the risk of losing their capital. But the risks of suffering a reduction of income and outliving their wealth are arguably more significant," he says.
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