How to Get Over Your Worries and Invest Like You Should for Retirement

The psychological toll of the Great Recession lingers among investors of all ages, new research suggests. Across the board, savers appear to be much too conservative with their portfolios.

Nearly 60% of retirees and workers past age 30 focus more on avoiding losses than maximizing growth, according to the Wells Fargo 2016 Retirement Study. This is fairly consistent among those in their 30s (59%), 40s (62%) and 50s (58%) and those 60-plus (52%).

Loss aversion is a common trait among those who have experienced traumatic declines in their wealth. It is especially acute in a country like Japan, where stocks have dragged for decades since their 1992 collapse. A new study out of Tokyo shows nearly 80% of Japanese workers would not touch an investment that might go up 20% or down 10% in a year.

Americans aren’t that conservative, according to the Wells Fargo study. But the findings are troubling, especially among younger generations that have little chance of reaching their savings goals by playing it safe in cash and bonds.

Well Fargo notes that a $10,000 investment 40 years ago would have grown to $581,295 by this year if invested 70% in stocks and 30% in bonds. Over the same period, $10,000 would have grown to just $336,715 if invested 70% in bonds and 30% in stocks. Those 40 years included a stock market crash in 1987, the Internet bubble burst around 2000, and the financial crisis of 2008.

In and near retirement, it makes sense to become more risk averse and lighten up on stocks. A big market hit at that time can cripple your finances if you are forced to sell assets while they are depressed. But even in your 60s, with 20 years or more to live, some growth will be important for most people and it may make sense to even add more stocks as you age—after having lightened up when you first retired.

No matter how much risk you take, or avoid, starting saving early and remaining a steady contributor to your account is a key to long-term success. Consistent savers began saving at a median age of 25, vs. a median age of 33 for those who save in fits and starts. Consistent savers have median savings of $150,000, vs. just $20,000 for those who do not save regularly, Wells Fargo found.

This finding jibes with research from the Employee Benefit Research Institute. It looked at a recent four-year period and concluded that 19.5% of steady 401(k) savers had a balance of more than $200,000 while only 10.7% of all 401(k) accounts had that level of savings.

Avoiding risk and playing it safe would not be an issue if individuals had more savings. But about half of workers expect their standard of living to decline in retirement, Wells Fargo found. They would do well to get over the financial crisis and beef up their allocation to stocks for the long run. To keep it simple and age appropriate, contribute at least 10% of pay to a target-date mutual fund and opt to have your contributions go up by at least 1% of pay each year until you are saving 15%.