Conservative “no-risk” investments such as money market funds don’t protect a portfolio from the erosion caused by inflation and income tax. Over the long term, inflation is a far more serious risk than market volatility.
For example, $300,000 in savings now will be worth only about $200,000 in 10 years if inflation averages 3% annually.
Over 20 years, the same rate of inflation cuts the nest egg to $163,138. Although inflation has been low for the past few years, over the past quarter century the average annual rate of inflation has been more than 5%. Inflation takes a bite over the short term as well. Suppose that your conservative investments pay 5% a year. If inflation averages 3%, your real return is just 2% per year. And if that income is subject to a marginal tax rate of 40%, your return drops to 0.