Safe Stocks for Retirement: Balancing Risk and Return

Lower risk stocks can be more stable and secure than other types of stocks, but in order to properly balance your risk and return expectations you need to consider their role as part of a diversified portfolio. Including safer stocks in your asset allocation decision may help provide you with a stable income in retirement.

Brandon Renfro, RetireGuide Reviewer
  • Written by
    Brandon Renfro, Ph.D., CFP®, RICP®, EA

    Brandon Renfro, Ph.D., CFP®, RICP®, EA

    Retirement and Social Security Expert

    Brandon Renfro is a Retirement and Social Security Expert and financial planner. He focuses on helping clients create a secure financial future in retirement and co-owns Belonging Wealth Management. He is also a former finance professor and writes for several publications.

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  • Edited By
    Savannah Pittle
    Savannah Pittle, senior financial editor for RetireGuide

    Savannah Pittle

    Senior Financial Editor

    Savannah Pittle is a professional writer and content editor with over 16 years of professional experience across multiple industries. She has ghostwritten for entrepreneurs and industry leaders and been published in mediums such as The Huffington Post, Southern Living and Interior Appeal Magazine.

    Read More
  • Financially Reviewed By
    Chip Stapleton
    Chip Stapleton

    Chip Stapleton

    Financial Advisor

    Chip Stapleton, a licensed financial advisor with expertise in investment analysis, portfolio construction and business planning, is a financial advisory manager for airCFO providing fractional CFO services to startups. He is known for his success in helping individuals and businesses achieve their financial goals and has mentored new advisors in building their practices.

    Read More
  • Published: May 10, 2023
  • Updated: August 9, 2023
  • 6 min read time
  • This page features 2 Cited Research Articles
Fact Checked
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A qualified expert reviewed the content on this page to ensure it is factually accurate, meets current industry standards and helps readers achieve a better understanding of retirement topics.

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How to Cite RetireGuide.com's Article

APA Renfro, B. (2023, August 9). Safe Stocks for Retirement: Balancing Risk and Return. RetireGuide.com. Retrieved May 22, 2024, from https://www.retireguide.com/retirement-planning/investing/low-risk-stocks/

MLA Renfro, Brandon. "Safe Stocks for Retirement: Balancing Risk and Return." RetireGuide.com, 9 Aug 2023, https://www.retireguide.com/retirement-planning/investing/low-risk-stocks/.

Chicago Renfro, Brandon. "Safe Stocks for Retirement: Balancing Risk and Return." RetireGuide.com. Last modified August 9, 2023. https://www.retireguide.com/retirement-planning/investing/low-risk-stocks/.

Key Takeaway
  • Safer stocks like value stocks tend to be more stable than others.
  • Because investors' investment focus shifts in retirement, retirees may look for lower risk stocks.
  • Investing in safe stocks alone isn’t a good way to diversify risk. Include other types of stocks and asset classes in your portfolio as well.
  • A broadly diversified portfolio with the right asset allocation for your specific needs is a better way to invest for retirement.

What Are Safe Stocks?

Safety becomes a greater investment priority for most people as they get closer to retirement. That’s a good thing, because the goal of investing shifts from accumulating and growing your account balance, to protecting your savings and providing a means of withdrawing money to cover retirement expenses. Your investments should reflect that change of focus.

For that reason, many retirees will look for safer stocks to invest in. These are often stocks whose returns have been relatively stable over time, have good fundamentals like low debt or higher earnings or have been in business for a long time and have a good reputation.

It’s important to remember that owning stocks means you have an asset whose value can fluctuate, and that subjects you to the risk of loss. That fact doesn’t change when you invest in safer stocks. There is no guarantee that a lower risk stock will increase in value. Although “safe” stocks such as value stocks may not be as risky as growth stocks, they are not a complete investing solution, especially in retirement.

Let’s explore the idea of “safe stocks” and how you can manage your investment risk as you transition into retirement and seek more stability and income.

Are Safe Stocks Important for Retirement?

This question requires a little expansion before we can answer it completely. In short, yes, it’s critically important that you don’t invest too aggressively in retirement. It is equally important that you avoid investing in purely speculative stocks whose future returns are highly unpredictable.

However, the counter to those actions isn’t to identify stocks that are considered “safe” and invest only in those. We need to look more broadly at our portfolio as a whole and consider how the combination of stocks, bonds and other assets we hold interact with each other. This is what underlies the investing principles of diversification and asset allocation.

What Are the Characteristics of Safe Stocks?

In general, value stocks are considered to be safer than growth stocks.

There are many different ways to identify value stocks but basic characteristics often include things like:
Low Volatility
Volatility is a measure of the variability of a stock's returns. Lower volatility means the stock's return is more consistent over time. You can also manage volatility in other ways that we will discuss below.
Stable Dividends
Value stocks tend to pay a relatively consistent dividend compared to growth stocks. It’s important that you understand how dividends work if you’re thinking about relying on them for retirement income though.
Low Price-to-Earnings Ratio
A common measure of stock valuation is the price-to-earnings (P/E) ratio, which compares the stock price to earnings per share. Value stocks have lower P/E ratios, which means you pay less per dollar of earnings the company generates.
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What Are the Risks of Investing in “Safe” Stocks?

The main risk of relying on safer stocks isn’t that the stocks themselves are bad, but because concentrating too much on any one type of investment also means your risk exposure is concentrated. This is what we call undiversified.

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How Can You Avoid These Risks?

To avoid that risk, you need to diversify your investments and hold a mix of different types of securities — called your asset allocation — that properly balance your return expectations and appetite for risk.

That means you should invest as aggressively as necessary to create the return you need to meet your goals, but conservatively enough to keep your risk in check and not stress yourself out. These two objectives are sometimes at odds with each other.

Did You Know?
At a high level, we often think about asset allocation as the balance between stocks and bonds. Other assets like commodities, annuities and cash may be included as well.

What Is Diversification?

Diversification means holding different types of stocks that are affected in different ways by changing market conditions. Rather than only investing in lower risk stocks, it’s better to include other types of investments, even riskier ones, in order to create a well-diversified portfolio. This is safer than investing in lower risk stocks alone. An effective way to achieve broad diversification is to invest in index funds that track different indexes such as the U.S. stock market, foreign developed markets, emerging markets and domestic and foreign bond markets as well.

Why Does Asset Allocation Matter?

While holding a diversified portfolio will reduce the inefficient risks you are exposed to, your choice of asset allocation determines how aggressive your portfolio is. Less aggressive portfolios tend to be more stable over time but also have lower average returns. More aggressive portfolios are more volatile but the average return is likely to be higher.

The classic “retiree portfolio” is 60% stocks and 40% bonds. This works for a lot of people. However, you need to consider your own situation and attitude toward investing when choosing your asset allocation. You may need to adjust that up or down to fit you best.

FAQs About Low-Risk Stocks

How should retirees balance their portfolio between low-risk stocks and other asset classes?
Low-risk stocks should only be a portion of your portfolio. Including other asset types will improve your portfolio's risk and return characteristics even more. There are many ways to do this. Research different allocation options to understand how they might fit your needs and preferences.
Can low-risk stocks still provide enough growth and income for retirees to meet their financial goals?
Many retirees will be able to generate the growth and income they need when “safe” stocks are a part of their diversified portfolio. More importantly, make sure you have enough saved to begin with and that you can reasonably expect your savings to last considering the amount you plan to withdraw.
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Last Modified: August 9, 2023
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2 Cited Research Articles

  1. Investor.og (n.d.) What is diversification? Retrieved from: https://www.investor.gov/additional-resources/information/youth/teachers-classroom-resources/what-diversification
  2. FINRA. (n.d.) Investing Basics Volatility. Retrieved from https://www.finra.org/investors/investing/investing-basics/volatility