According to a recent survey, 82 percent of married couples in their late 40s with dependents fear outliving their money more than death. “Think about that for a moment; that’s an astonishing fact,” said Shari Rubin Taylor of Pinnacle Financial Advisers in Plantation.

When City & Shore asked if clients are seeking safer investments, Taylor and partner, Earl Nightingale Jr., answered, “Absolutely,” quoting results from a 2010 study by Larson Research and Strategy  Consulting and DSS Research for Allianz Life Insurance Company.

Rainford M. Knight, Ph.D., professor of finance at Florida Atlantic University, also has witnessed the deterioration of investor risk tolerance. “Many investors have become fearful of equity markets…evidenced by the move of capital out of equities and into fixed income [i.e. bonds] and cash,” he said, adding that the heightened fear may be an overreaction.

“The recent volatility in markets is not out of line when one looks at the historical performance of the Dow Jones Industrial Average,” said Knight, who is also a founder of the Florida institute of Finance in West Palm Beach, which provides finance education and training to corporations; and a board member of the Florida Alternative Investment Association, a Florida-focused hedge fund association.

How do investors balance their fear of risk with the need to grow their nest eggs? We asked these professionals for their advice on safe investments. 

Knight: The classic safe-haven investments include cash, bonds, gold and commodities. Sometimes, however, they are not as safe as they seem. For example, investors seeking principal protection may view U.S. Treasury securities as safe in spite of the low and, in some cases, negative yields. These yields produce negative real returns to investors, which can be characterized as paying the government to protect your principal. Commodities have been extremely volatile, and gold is perhaps a bubble trade.

For long-term investors, safe-haven investments are a short-term fix. Over the long term, in order to meet investment and retirement goals, investors will need to focus on developing asset allocation models based on taking on risk in their portfolios. Without some acceptance of risk by investors, it will be very difficult for them to achieve their retirement and investment goals. The asset allocation models should reflect the risk tolerance of the investor and portfolio diversification.

In today’s economy, my view of safe investments includes a blend of cash, fixed income (i.e. bonds) and high dividend yielding stocks. Cash (3 to 9 months’ worth, depending on your life situation) is needed as a portfolio buffer. Fixed income has to be included to provide an equity hedge, given the historical negative correlation that exists between stocks and bonds. High dividend yielding stocks provide the potential for stable growth, given that the cash dividend can increase over time along with the expectation that the share price will appreciate.

Taylor & Nightingale: For safety, investors must take a long-term, focused approach towards retirement. Our life expectancies are greater than our parents, traditional safe money options pay next to nothing, and the cost of living increases every day. Overinvestment in short-term instruments (such as CDs and money market accounts) contributes greatly to not having enough money in retirement.

We recommend a variety of products based on investor goals, including fixed and fixed-indexed annuities and life insurance products that are designed to supply a stream of tax-free income in retirement.

It’s a challenge sometimes to discuss the “A” word, as some people have heard about bad experiences with annuities in the past. These newer products can offer market gains without a chance of market loss and free or very low-cost lifetime income riders, providing a stream of income that the investor cannot outlive. Most of them come with riders that allow accelerated access to your money should you become ill. They also can be used as savings vehicles, allowing the client to walk away with their principal and interest after a specified period of time. There are even some products that can turn IRA money into tax-free life insurance products to use for wealth transfer.

How should investors determine how much risk to assume in their portfolios?

Knight: Prior to 2008, some investment firms used surveys to determine investor risk profiles by asking questions such as, If my stock investments fell more than 25 percent, what would I do? Sit tight, sell it, do nothing or buy more? What they should be asking is, If I lose all of my nest egg, would I risk it again? Or, How much of this investment can I afford to lose if I have a liquidity need in 12 months, and these funds are all that I have available?

The reason it is important to ask these questions is that an investor’s willingness to take risk depends the mood of the investor, the age, investment goals and experience.

Taylor & Nightingale: We favor a balanced approach when discussing retirement account options. We look at many factors, including age, physical health, retirement goals, tax situation, wealth transfer/estate planning needs and desires.  You will plan very differently with someone who is worried about leaving a legacy as opposed to one who wants to spend all of their money before they pass on.

What pitfalls should investors avoid in seeking low-risk products?

Knight: Investors should properly define what low risk means to them. Sometimes they try to de-couple risk from return: wanting high return with very low risk. Investors must understand that the products offering the lowest risk will generally offer the lowest yields. These products must be considered against the investment goals and objectives of the investor.

Taylor & Nightingale: The biggest pitfall to avoid is lack of knowledge; options exist today that are safe and provide terrific returns.

— Elizabeth Rahe