07/13/2011 05:46 pm ET | Updated Sep 12, 2011

Playing Russian Roulette With Retirement Funds Is Dumb

Desperate people do desperate (and dumb) things.

Playing 'Russian Roulette' with your retirement funds in a misguided effort to make up for past missteps is one of them -- especially for those in their fifties and sixties.

In the hunt for a 'magic bullet' solution, some mainstream financial planners and money managers are now promoting a strategy for retirees and soon-to-be retirees that involves bulking up on stocks and shunning more conservative fixed-income investments.

Basically, these gurus are urging their clients to put a bullet in the financial chamber and give it a spin. The hope, I guess, is that their clients will get lucky and Wall Street will steadily rise just when these pre-retirees most want and need a bull market.

Perhaps I'm restating the obvious, but wasn't it the very same stock market that crashed in 2000 and then again in 2008, sweeping away much of their clients' wealth in the first place?

Only last week, a article -- carried by -- quotes an investment advisor in Oklahoma City who recommends that older investors hold 30% to 40% of their assets in stocks -- and in certain circumstances perhaps even more.

Sure the stock market is volatile, this financial planning expert acknowledges, "but actually that's a very minor risk."

No. It's not.

From the Dow Jones Industrial Average's all-time record high of 14,164.53 less than four years ago, to the stock market's current 52-week trading high of 12,876.00, is still a loss of 9.1%.

Translation: If you trusted $100,000 of your nest egg to a stock index fund in October 2007, you have less than $91,000 of it left today - perhaps a lot less. And these numbers don't reflect inflation OR the fees and expenses you would have paid to those experts and institutions that gave you the (wrong) advice in the first place.

Those currently promoting stocks to retirees and pre-retirees argue that accepting market risk and volatility is necessary to close the gap between what you have and what you will need in retirement, especially as people continue to live longer. These pundits note that inflation alone is likely to outpace Treasury bond yields over the next few years - making fixed income investments a bad place to put your nest egg.

But frankly, even if you buy the forecasts these financial planners are betting (your money) on, they are still arguing that older people would be wise to put a large portion of their nest eggs at risk in an effort to offset the potential diminishment of their purchasing power - that is, as an inflation hedge.

But inflation -- even at its worst -- never chomped as much value from a retirement portfolio as Wall Street commonly consumes during its routine and rather unpredictable freefalls.

Without exaggeration, those risk-weary Americans who in the year 2000 had simply stashed their retirement funds in cash under their mattresses would have been better off a decade later than if they had kept their money -- at risk the entire time -- in a mutual fund that mirrored the performance of the S&P 500.

Even safe and conservative long-term treasury bonds -- the kind your grandparents kept in their retirement portfolios so they could sleep at night and that many of today's wealth managers mock -- outpaced Wall Street for the past 40 years, according to a 2009 study by Robert Arnott in the Journal of Indexes.

There is no arguing that retirees and pre-retirees who have not yet saved enough to comfortably carry them through their retirements years do face a serious catch up challenge. But this is certainly not the time to subject your existing assets to risk and volatility, much less lever up that risk.

Sorry, there is no magic bounce-back bullet.

Nonetheless, I have seen pre-retirees and other latecomers by the thousands make amazing retirement savings rebounds when they follow the steps outlined in my bestselling book, Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future. No risk or volatility allowed.

The bottom line: If you've already shot yourself in the foot following the recommendations of those who think the stock market is a wise place to invest your retirement funds, whatever you do now, don't shoot yourself in the head trying to correct your mistakes.

New York Times bestselling author Pamela Yellen is the executive editor and founder of, a personal finance and lifestyle website dedicated to self-reliant, independent-minded investors and savers.