The Hidden Investment Risks You Don’t See Coming: Kentucky Retirement Planning Insights

The Tom Dupree Show

The Hidden Investment Risks Pre-Retirees and Retirees Don’t See Coming: Kentucky Retirement Planning Insights

Are you approaching retirement and concerned about protecting your life savings from market volatility? In this comprehensive episode of the Tom Dupree Show, Kentucky retirement planning advisors Tom Dupree and Mike Johnson explore the multidimensional nature of investment risk and why personalized investment management is essential for pre-retirees aged 50-65. Unlike mass-market approaches from large firms, Dupree Financial Group provides direct access to portfolio managers who understand your specific retirement goals and risk tolerance.

This evergreen financial education episode delivers timeless wisdom on risk assessment, portfolio protection strategies, and why understanding what you own is critical before retirement. Whether you’re working with a local financial advisor in Kentucky or managing investments on your own, these insights will help you make more informed decisions about your retirement security.

Key Takeaways: Investment Risk Management for Pre-Retirees

• Risk is multidimensional: Investment risk extends beyond simple volatility—it includes sequence of returns risk, concentration risk, and the risk of falling short of your retirement goals
• The Capital Asset Pricing Model misconception: More risk doesn’t automatically mean more return; it means a wider range of potential outcomes, both positive and negative
• The danger of false security: Long periods of strong returns can create complacency, causing investors to unknowingly take on excessive risk right before retirement
• Personalized portfolio analysis matters: Your investment strategy must align with your specific retirement timeline, income needs, and risk capacity—not just market averages
• Understanding beats panic: Clients who truly understand their portfolio holdings don’t panic during market downturns because they know their strategy is designed for their goals
• Active risk identification: Professional Kentucky retirement planning involves continuously identifying and monitoring specific risks to each holding, not just following the crowd

Howard Marks on Investment Risk: Wisdom from a Market Legend

The episode draws heavily from Howard Marks’ influential 2006 memo on risk, which Tom and Mike have studied extensively. Marks, co-founder of Oaktree Capital Management, challenges conventional thinking about risk and return relationships.

“If more risk always meant more return, it would cease being risky. The risk would be riskless,” explains Mike Johnson, highlighting the fundamental misunderstanding many investors have about the risk-return relationship.

The discussion emphasizes that bearing risk unknowingly represents one of the biggest mistakes pre-retirees can make. This is particularly relevant for those who have experienced strong market performance for years without understanding the volatility embedded in their portfolios.

The Real-World Cost of Ignoring Investment Risk

Tom Dupree shares a cautionary tale that every pre-retiree should hear:

“There was a man that came to me years ago who had been at UK for a number of years. He had invested in Fidelity and TIAA-CREF, good funds, great returns. He had something like 1,000,006 and he had averaged 13 and a quarter percent return per year for like 23 years. He extrapolated that he could take 10% a year, which was $160,000, live on it and be okay because it was gonna keep doing that. The sequence of returns turned around and bit him good.”

This example perfectly illustrates sequence of returns risk—a critical concept for anyone approaching retirement. Even with excellent average returns, the timing of market downturns relative to when you need to withdraw funds can devastate a retirement plan. This is why personalized investment management from a local financial advisor who understands your specific timeline is so valuable.

Why Volatility Isn’t the Only Risk Pre-Retirees Face

The episode challenges the traditional definition of investment risk as merely volatility. For pre-retirees and retirees specifically, Mike Johnson explains:

“The base case that we’re trying to solve here? We’re speaking specifically to near retirees and retirees. Volatility is gonna be your friend or your foe the day you need to take your money out. That’s gonna be your definition of risk—what has the volatility done to my money the day I need it.”

Additional Risk Dimensions for Kentucky Retirement Planning

• Falling short of goals: The risk that your portfolio won’t produce sufficient income for your desired retirement lifestyle
• Concentration risk: Over-exposure to single stocks or sectors, especially common with company stock or recent tech winners
• Unconventionality risk: The professional risk advisors take when thinking independently rather than following the crowd—but this can benefit clients long-term
• Underperformance risk: Short-term underperformance relative to indices, which requires conviction in your strategy and understanding your goals
• Hidden risk exposure: Unknown risks embedded in portfolios, particularly index funds that provide no true diversification strategy

The False Sense of Security: Why Long Bull Markets Are Dangerous

One of the most powerful concepts discussed is how prolonged positive market performance can numb investors to risk—exactly when they should be most vigilant.

Mike Johnson references Nassim Taleb’s “Fooled by Randomness” to illustrate this danger:

“Reality’s far more vicious than Russian roulette. First, it delivers the fatal bullet rather infrequently, like a revolver that would have hundreds or even thousands of rounds instead of six. After a few dozen tries, one forgets about the existence of a bullet under a numbing false sense of security. One is thus capable of unwittingly playing Russian roulette and calling it by something alternative: low risk.”

This perfectly describes the situation many pre-retirees face today after years of strong market performance. The analogy to driving at 90 mph—where you stop feeling the speed—resonates powerfully. You’re taking significant risk, but you’ve become accustomed to it and no longer perceive the danger.

Direct Access to Portfolio Managers: The Dupree Financial Difference

Unlike large firms where you’re assigned an investment counselor who may change frequently, Dupree Financial Group provides direct access to portfolio managers Tom Dupree and Mike Johnson. This relationship-focused approach enables:

• Deep understanding of your specific retirement timeline and goals
• Customized portfolio construction based on your unique risk capacity
• Ongoing education about what you own and why you own it
• Proactive risk identification specific to your holdings
• The ability to think unconventionally when it serves your interests

“When our clients understand what’s in their portfolio and why, they don’t call us panicking when the market drops,” Tom Dupree emphasizes, highlighting the value of education and transparency in financial relationships.

Why Index Funds Aren’t a Complete Investment Strategy

The episode delivers a sobering message about the limitations of index fund investing for retirees:

“If you don’t like risk and you think that you’re not taking any risk by investing in the S&P 500, sweetie pie, you need to get in the money market fund and just hope you got enough money to ride through it because you are taking risk that you don’t know about. And that is a problem because you’re gonna find it out in a very uncomfortable way at some point.”

This doesn’t mean index funds have no place in portfolios, but rather that they shouldn’t be confused with a comprehensive retirement income strategy. Personalized portfolio analysis considers:

• Your specific income needs in retirement
• Time horizon until you need to access funds
• Concentration risk in popular stocks or sectors
• The difference between the accumulation and distribution phases
• Tax efficiency of different investment approaches

Building a Foundation: From Stocks to Portfolio

For younger investors just starting out, Mike Johnson offers this perspective:

“If somebody’s in their late twenties, early thirties and they have a few stocks here and there, that’s great. You’re ahead of the curve from a lot of people, but that is not a portfolio. What you want to do is lay a foundation that’s more sturdy, more solid than just having a few stocks here and there.”

This guidance is equally relevant for pre-retirees who may have accumulated individual positions over time without a cohesive strategy. Kentucky retirement planning requires transitioning from an accumulation mindset to a distribution strategy—and that requires professional portfolio architecture.

The Retirement Risk Equation: It’s About Income, Not Just Account Balance

One of the most important insights for pre-retirees:

“Remember, it’s not just the accumulation, it’s not the dollar amount, it’s what it’s gonna produce for you and how long can it produce that to sustain you. Retirement has the normal set of rules plus other variables that you have to take into consideration.”

This shift in perspective—from portfolio value to sustainable income—is where personalized investment management becomes critical. Every individual’s situation differs slightly, and those differences matter enormously in retirement planning.

Faith, Risk, and Investment Philosophy

Tom Dupree introduces an often-overlooked dimension of investment risk: the role of faith. Not just faith in markets or historical returns, but a deeper consideration of existential risk and what you ultimately trust.

“Underpinning any investment scheme is faith. At the base of everything related to risk is faith. You cannot get away from it. One of the things about the God factor is that it takes certain elements of risk that you’re willing to take on for yourself and transfers them to a higher power.”

While this dimension is personal and not emphasized in typical financial planning, it reflects Dupree Financial Group’s holistic approach to understanding clients as people—not just portfolios.

Frequently Asked Questions About Investment Risk and Retirement Planning

What is the biggest investment risk for pre-retirees?

The biggest risk for pre-retirees is sequence-of-returns risk—experiencing market downturns just as you begin withdrawing from your portfolio. Even with strong average returns over time, poor returns in the years immediately before and after retirement can devastate your retirement security. This is why personalized retirement planning in Kentucky focuses on more than just average returns.

How is investment risk different for retirees versus younger investors?

For retirees, risk is primarily defined by volatility’s impact on withdrawals. When you need to take money out during a market downturn, you crystallize losses and reduce your portfolio’s recovery potential. Younger investors have time to recover from volatility. As Tom Dupree explains, “Volatility is gonna be your friend or your foe the day you need to take your money out.”

Are index funds safe for retirement portfolios?

Index funds are not inherently “safe” for retirement—they carry significant volatility and concentration risks (especially in large-cap tech stocks right now). While they can be part of a retirement strategy, they should not be confused with a comprehensive income plan. Local financial advisors can help design strategies that balance growth needs with income stability.

How much can I safely withdraw from my retirement portfolio annually?

There’s no universal answer—withdrawal rates depend on your portfolio composition, risk tolerance, retirement timeline, and income needs. The gentleman in Tom’s example assumed 10% annual withdrawals based on historical 13.25% returns, which proved disastrous. Personalized portfolio analysis determines sustainable withdrawal rates specific to your situation.

Why should I work with a local Kentucky financial advisor instead of a large national firm?

Local advisors like Dupree Financial Group provide direct access to portfolio managers who personally manage your investments, rather than being assigned to a counselor who may change. You receive personalized service, education about your holdings, and strategies tailored to your specific goals—not mass-market approaches. Tom emphasizes: “When our clients understand what’s in their portfolio and why, they don’t call us panicking when the market drops.”

What does it mean to “know what you own” in my portfolio?

Knowing what you own means understanding not just the names of your holdings, but the specific risks each position carries, how they work together, and why each was selected for your situation. It means knowing what could go wrong with each investment and having conviction in your overall strategy during market volatility.

How often should I review my retirement portfolio risk?

Pre-retirees should review portfolio risk at least annually, and more frequently as retirement approaches. Risk tolerance, time horizon, and income needs change as you near retirement. Kentucky retirement planning professionals continuously monitor holdings for emerging risks and rebalance as needed.

What is concentration risk, and why does it matter?

Concentration risk occurs when your portfolio has too much exposure to a single stock, sector, or asset class. Many investors have unknowingly accumulated concentration in large technology stocks through both index funds and individual holdings. If that sector declines, your entire portfolio suffers disproportionately. Diversification addresses concentration risk.

How do I know if I’m taking too much risk before retirement?

Signs you may have excessive risk include: heavy concentration in stocks after years of strong returns, high portfolio volatility relative to your withdrawal timeline, lack of income-producing assets, or simply not understanding what you own. A complimentary portfolio review with Dupree Financial Group can identify hidden risks: call 859-233-0400.

What makes Dupree Financial Group’s investment philosophy different?

Dupree Financial Group focuses on building long-term relationships with people—not just managing money. The team conducts their own research, provides comprehensive education, thinks independently rather than following the crowd, and designs portfolios around your specific goals. Learn more about their investment philosophy.

Schedule Your Complimentary Portfolio Risk Analysis

Don’t Wait for a Market Downturn to Discover Hidden Risks in Your Portfolio

If you’re retired or approaching retirement, understanding the specific risks in your portfolio is critical. After 47 years in the investment business, Tom Dupree has seen countless retirees discover they were taking far more risk than they realized—often at the worst possible time.

Dupree Financial Group offers Central Kentucky residents a complimentary portfolio review to help you:

• Identify hidden concentration risks in your current holdings
• Understand the sequence-of-returns risk as you approach retirement
• Evaluate whether your portfolio aligns with your retirement income needs
• Learn what you actually own and why it matters
• Develop a personalized strategy for your retirement timeline

Call 859-233-0400 to schedule your complimentary consultation

Or visit us online:

• Schedule Your Personalized Portfolio Analysis
• Learn About Our Investment Philosophy
• Listen to More Market Commentary
• Read Client Testimonials
• Explore Kentucky Retirement Planning Services

Dupree Financial Group serves clients throughout Central Kentucky, including Lexington, Louisville, Frankfort, Winchester, Richmond, and surrounding communities.

About the Tom Dupree Show

The Tom Dupree Show provides timeless financial education for investors approaching and in retirement. Hosted by Tom Dupree, Jr., founder of Dupree Financial Group, and portfolio manager Mike Johnson, each episode delivers practical insights on investment management, retirement planning, and portfolio risk assessment. Unlike generic financial advice, the show focuses on the specific challenges facing Kentucky retirees and pre-retirees.

Tom Dupree founded Dupree Financial Group on the principle that creating long-term relationships with people—not just their money—is the key to successful wealth management. With direct access to portfolio managers and personalized investment strategies, Dupree Financial Group delivers the attentive service of a local advisor with the knowledge of a seasoned investment team.

Episode Type: Evergreen Financial Education

Primary Topics: Investment Risk, Retirement Planning, Portfolio Management, Sequence of Returns Risk

Featured Guests: Mike Johnson, a member of the team at Dupree Financial Group

Listen to More Episodes: Market Commentary Archive

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