The Hidden Investment Risks You Don’t See Coming: Kentucky Retirement Planning Insights

The Hidden Investment Risks Pre-Retirees and Retirees Don’t See Coming: Kentucky Retirement Planning Insights

Are you approaching retirement and concerned about protecting your life savings from market volatility? In this comprehensive episode of the Tom Dupree Show, Kentucky retirement planning advisors Tom Dupree and Mike Johnson explore the multidimensional nature of investment risk and why personalized investment management is essential. Unlike mass-market approaches from large firms, Dupree Financial Group provides direct access to portfolio managers who understand your specific retirement goals and risk tolerance.

This financial education episode delivers timeless wisdom on risk assessment, portfolio protection strategies, and why understanding what you own is critical before retirement. Whether you’re working with a local financial advisor in Kentucky or managing investments on your own, these insights will help you make more informed decisions about your retirement security.

Key Takeaways: Investment Risk Management for Pre-Retirees

• Risk is multidimensional: Investment risk extends beyond simple volatility—it includes sequence of returns risk, concentration risk, and the risk of falling short of your retirement goals
• The Capital Asset Pricing Model misconception: More risk doesn’t automatically mean more return; it means a wider range of potential outcomes, both positive and negative
• The danger of false security: Long periods of strong returns can create complacency, causing investors to unknowingly take on excessive risk right before retirement
• Personalized portfolio analysis matters: Your investment strategy must align with your specific retirement timeline, income needs, and risk capacity—not just market averages
• Understanding beats panic: Clients who truly understand their portfolio holdings don’t panic during market downturns because they know their strategy is designed for their goals
• Active risk identification: Professional Kentucky retirement planning involves continuously identifying and monitoring specific risks to each holding, not just following the crowd

Howard Marks on Investment Risk: Wisdom from a Market Legend

The episode draws heavily from Howard Marks’ influential 2006 memo on risk, which Tom and Mike have studied extensively. Marks, co-founder of Oaktree Capital Management, challenges conventional thinking about risk and return relationships.

“If more risk always meant more return, it would cease being risky. The risk would be riskless,” explains Mike Johnson, highlighting the fundamental misunderstanding many investors have about the risk-return relationship.

The discussion emphasizes that bearing risk unknowingly represents one of the biggest mistakes pre-retirees can make. This is particularly relevant for those who have experienced strong market performance for years without understanding the volatility embedded in their portfolios.

The Real-World Cost of Ignoring Investment Risk

Tom Dupree shares a cautionary tale that every pre-retiree should hear:

“There was a man that came to me years ago who had been at UK for a number of years. He had invested in Fidelity and TIAA-CREF, good funds, great returns. He had something like 1,000,006 and he had averaged 13 and a quarter percent return per year for like 23 years. He extrapolated that he could take 10% a year, which was $160,000, live on it and be okay because it was gonna keep doing that. The sequence of returns turned around and bit him good.”

This example perfectly illustrates sequence of returns risk—a critical concept for anyone approaching retirement. Even with excellent average returns, the timing of market downturns relative to when you need to withdraw funds can devastate a retirement plan. This is why personalized investment management from a local financial advisor who understands your specific timeline is so valuable.

Why Volatility Isn’t the Only Risk Pre-Retirees Face

The episode challenges the traditional definition of investment risk as merely volatility. For pre-retirees and retirees specifically, Mike Johnson explains:

“The base case that we’re trying to solve here? We’re speaking specifically to near retirees and retirees. Volatility is gonna be your friend or your foe the day you need to take your money out. That’s gonna be your definition of risk—what has the volatility done to my money the day I need it.”

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