Wealth Preservation: Understanding the Real Enemy – The Human Side of Money presented by Client Care

Wealth preservation is a priority for everyone, especially as we approach or enter retirement. However, it’s often misunderstood. Many associate wealth preservation with low-risk, low-volatility investments, believing this conservative approach will protect their capital. Unfortunately, this strategy often leaves one vulnerable to a far greater enemy: inflation.

Inflation erodes purchasing power over time, making a conservative portfolio an inadequate defence. The real way to preserve and grow wealth is through significant exposure to equities, even—and especially—during retirement. Equities provide the growth necessary to outpace inflation and sustain long-term financial independence.

The idea of “de-risking” investments as retirement nears is outdated and counterproductive. While it might feel safer, it ignores a crucial fact: your investment horizon doesn’t end at retirement. With life expectancy increasing, many retirees could spend 30 to 40 years in retirement. A portfolio overly weighted in low-risk, low-return investments may not generate the growth required to support such a long period of withdrawals.

Yes, markets can be volatile. But consider the bigger picture: markets go up far more than they go down. However, bad news sells, so the financial media often focuses on declines, creating unnecessary panic. This “financial porn” clouds judgement and leads to short-term decisions that can derail long-term goals.

Since World War II, there have been 26 market corrections, with an average decline of 13.7%. Despite the temporary dips, the average recovery time was just four months. Additionally, a 10% market decline occurs roughly every two years. These downturns, while unsettling, are part of a healthy market cycle. What matters is the long-term upward trend, which transforms temporary declines into permanent gains.

Wealth preservation is not about avoiding volatility; it’s about ensuring your investments outpace inflation over time. Stay focused on your long-term lifestyle and financial goals. Trust in a strategy that includes equities to protect your wealth, grow your purchasing power, and secure the retirement of your dreams. Ignore the noise, stay the course, and preserve your wealth the right way.

Dirk Groeneveld, Certified Financial Planner.