It’s not like stocks are equally risky. But picking winners is hard. The idea of putting most of your money in stuff slightly more conservative than average and just a little in stuff more risky but with real possible potential is a pretty good idea; regardless of how you finagle the details.
Stocks are likely to do better than bonds, as they usually do, but in a short investment horizon may be a worse choice. But the goals and “peace of mind” tests matter too.
I’ll push back against this a little bit:
Assume I have enough saved to last me through my anticipated retirement needs. But not much more. In the spirit of a somewhat related thread, call it a million. Losing $500 K is life changing in a bad way. Gaining? Allows me to leave more for my kids and maybe take a few more luxury expenses. Every dollar below keeping the roof over my head and food on table is worth a lot more than every dollar above that.
It isn’t completely irrational to fear loss more for many people.
I agree, but it is still not a perfect indicator at all: markets can and do get it wrong. Specially in times when the mood changes, more so when it changes abruptly – the indicator breaks down when you would need it most. But at least options give you the chance to buy insurance: all you have to figure out is whether the price for the insurance, which if you don’t need it in hindsight diminishes your returns, is for you worth paying. That depends on the individual asset: for Truth Social/DJT it would be prohibitively expensive right now, for a typical blue chip it is now very affordable.
As options can be highly leveraged some people use them not for hedging their investments but to speculate directly. That is another story, and an approach that I would mostly discourage except for small amounts of “play money”, if at all.
So the question boils down to: stocks usually outperform bonds in the long term, but are riskier in the short term. How much do stocks outperform bonds in the long term when you hedge them to what level of maximum loss, and from which level of insurance against loss do stocks fail to outperform bonds?
I’d revise my statement from, “people would feel the same…” to “people who have the privilege of treating their wealth as an abstract thing they want to grow for eventual use, rather than something they need to use to survive in the short term, would feel the same…”. Clearly people with a lot of savings on the verge of retirement is not in that category, but investment bankers playing with other people’s money and people early in their careers saving for a distant retirement are.
I assume the money OP’s son is putting away is not for use in a short amount of time, so he has the liberty of being able to look for the optimal amount of return.
Or to put in another way, most of us are counting, at least partially, for our retirement savings to grow during our working years in order to be enough for retirement. Someone early in their careers usually ought to be concerned that their investments won’t grow enough to be able to support them in retirement, in basically the same way that someone late in their career should be concerned that they might lose their nest egg.