Always pick conservative 401k funds?

In My Humble Opinion
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Another thing to remember is that you don’t need all of your retirement funds on the day you retire. If you are reasonably healthy at 65 (or whenever you retire), *most *of your retirement funds will still have a 10, 20, or 30 year time frame.

This is why I think the “common wisdom” of moving to more conservative investments is hokum. If you expect to live 20 or 30 years after you retire a very large percentage of your retirement funds should still be invested in stocks. (e.g., an index fund.)

A very simplified example: assume you’re going to live another 20 years after retirement, and that your existing money at retirement will never lose or gain any value over that period. Also assume that you will spend the same amount every year of your retirement funds. That means, you spend 5% of your money every year. Even in this absurdly conservative example, 75% of your money has a 5 year or greater time horizon.

Stocks are the only investment that have given a positive inflation-adjusted return over the long haul. And over the long term, volatility is not the primary risk; inflation is.

Bonds, over the long term, consistently lose to inflation.

J.

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However when you retire, your only source of income (not counting Social Security) does not have to be sales of assets. There are funds built around relatively high dividend stocks, and these are a good intermediate step between volatile stocks which often to not produce income and stable bonds, the danger of which has already been mentioned. You can’t expect much price growth in dividend stocks, but we got lucky since we got into them before the yield crash.

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There are many factors to consider, including your age, your dependents, your lifestyle, your expected retirement age, your risk comfort level, etc. My advice is to talk to a financial advisor*. Their job is to explain everything to you and help you make the right decision.

Disclaimer: My husband is an FA.