Investors who avoid risk on their investments could be opening themselves up to another risk—lower long-term returns—according to a study from Jackson National Life Insurance Co.

Surveyed investors who identified as “risk-averse” tended to shy away from equities, to hold large cash positions and to lack portfolio diversification. These characteristics may seem “cautious on the surface,” but “may increase exposure during economy-wide downturns,” according to the study.

Investors saw better investment outcomes by engaging in “moderate risk-taking,” which the study found meant a balanced approach to risk, such as diversifying portfolios and moderate equity exposure.

Moderate-risk investors were more likely to meet important financial benchmarks and more likely to use cost-efficient tools like index mutual funds and exchange-traded funds, improving their chances for positive long-term outcomes.

Glen Franklin, Jackson National Life Distributors LLC’s assistant vice president of research, RIA and lead generation strategy, said in a statement that the study’s conclusions refuted the traditional idea that being risk-avoidant means one will have financial security, adding that the research also “underscores the importance of aligning financial behaviors with long-term goals.”

Common ‘Risk-Averse’ Behaviors

Investors who are “risk-averse” are usually hoarding cash, with their ideal cash holdings averaging 49% of total assets, more than double the recommended 20%. These cash holdings can reduce investors’ gains during market upswings, and the lack of diversification can lead to increased exposure to volatility during downturns.

For risk-avoidant investors, the study said annuities can “play a unique role in helping manage market risk.” Among surveyed financial professionals, 61% used annuities with guaranteed income to manage investment risk for clients in retirement.

Annuities are often a supplement to traditional investing strategies because they “provide protection options, growth opportunities and income, especially when tailored to a client’s vulnerability profile,” according to the study.

The study included online surveys (fielded between October 15 and October 29, 2024) of more than 1,000 investors between the ages of 48 and 78 with at least $100,000 in financial assets. An additional online survey of 400 financial professionals was conducted between November 4 and 18, 2024.