By Jeff Bernier
If the last few years have taught us anything, it’s that uncertainty is the norm—not the exception. Whether you’re retired or getting close, building a portfolio that can handle the unexpected is one of the most important steps you can take toward long-term peace of mind.
In our latest Money & Meaning podcast episode, I had the chance to speak with Larry Swedroe—author, consultant, and one of the most thoughtful voices in evidence-based investing. Larry shared a number of insights that I think are especially valuable right now, particularly for those looking to reduce risk without giving up long-term discipline.
Here are a few key takeaways from our conversation:
Risk Isn’t Just a Number—It’s Personal
Many people think of risk as a single score or statistic—like volatility or standard deviation—but real-life risk is much more personal than that.
During our conversation, we explained how risk should be understood through three dimensions:
- Your ability to take risk – Do you have the financial capacity to weather a market downturn? This includes your time horizon, income sources, and overall net worth.
- Your willingness to take risk – This is your emotional tolerance. How would you react if markets dropped significantly tomorrow? Would you stick with the plan or be tempted to make changes at the wrong time?
- Your need to take risk – How much return do you actually need to reach your goals? Sometimes, taking less risk can still get you where you want to go—if you’re already on track financially.
For pre-retirees, especially those entering the “retirement red zone” (the 5–10 years before and after retirement), understanding these three dimensions is critical. You may have a strong portfolio, but if it’s not aligned with how you feel about risk—or what you truly need from it—you could end up making emotional decisions that hurt you more than the market ever could.
This is where thoughtful planning comes in. When your investment strategy is built around your personal goals and clearly defined risk profile, you’re more likely to stay the course when it matters most.
Diversification Isn’t Dead—It’s Evolving
We’ve all heard the phrase “don’t put all your eggs in one basket.” But in today’s market, that goes beyond the usual mix of stocks and bonds.
Larry and I talked about how alternative investments—like private credit, reinsurance, and infrastructure—are becoming more accessible to individual investors, especially through lower-cost, professionally managed vehicles. These are asset classes that historically were only available to large institutions, but now may be available to individuals who are seeking broader diversification.
Why does this matter? Because these types of investments don’t always move in sync with public markets, and they often behave differently during periods of stress. That means they may help smooth out returns over time, which becomes especially important in the years just before or after retirement.
This ties into something called “sequence of returns risk”—a concept that’s easy to overlook but can have a big impact on retirement outcomes. It refers to the risk of experiencing poor market returns early in retirement, when you’ve just started drawing income from your portfolio. Those early losses can do more damage than the same losses occurring later on, because you’re withdrawing funds while your investments are down.
Are alternative investments right for everyone? Not necessarily. But the key point is this: Adding alternative investments that respond differently to market events may help reduce risk by adding other sources of return that aren’t tied to traditional stock and bond movements.
Play the Winner’s Game
Larry reminds us that successful investors don’t try to outguess the market. Instead, they focus on what they can control—costs, discipline, and smart diversification across proven sources of return.
Larry builds on a concept introduced by Charles Ellis, who called active investing—trying to beat the market through stock picking or market timing—a “loser’s game.” It’s not that outperformance is impossible, but that the odds of doing it consistently, especially after fees and taxes, are so low that it’s not a strategy most investors should rely on.
The problem? Markets are highly efficient. By the time you or even most professionals act on new information, it’s often already reflected in the price. So chasing hot stocks, jumping in and out of markets, or reacting emotionally to headlines often leads to disappointing results over time.
Instead, Larry advocates for what he calls the “winner’s game.” This approach focuses on what you can control:
- Keeping costs low
- Staying disciplined
- Using evidence-based strategies
- Diversifying across multiple sources of return
- And most importantly, aligning your portfolio with your personal goals and risk profile
When you shift your focus from trying to predict the market to building a resilient, diversified portfolio, you give yourself a more grounded and disciplined way to pursue your long-term goals. It may not grab headlines—but it’s a thoughtful approach supported by research and experience.
If you want to dive deeper, I highly recommend checking out the full podcast episode. It’s packed with insights for anyone looking to build a more resilient, thoughtful investment strategy.
About the Author: Jeff Bernier
