Last week a good friend of mine who retired early in his 50s asked for my opinion on an investment change he had been contemplating. He had invested in the Vanguard Total Stock Market Index Fund (VTSAX) to help build his retirement savings, but he was no longer satisfied with the returns.

I didn’t tell him what he wanted to hear. But I think it’s important advice, and I want to share it with you.

VTSAX Objectives

As its name implies, this fund seeks to track the performance of the entire U.S. stock market by providing broad exposure to large-, mid-, and small-cap growth and value stocks.

By investing in thousands of stocks across market capitalizations and investment styles, the fund aims to provide diversified exposure to the overall U.S. equity market. The goal is to capture the returns of the total U.S. equity market in a low-cost way through a single fund. This makes it a good core equity holding for investors seeking broad stock market exposure in a diversified portfolio without a lot of hassle.

The Nasdaq 100

The Nasdaq 100 is a stock market index composed of 101 equity securities listed on the Nasdaq stock exchange. My friend had noted that the Nasdaq 100 index had outperformed the VTSAX over the previous 1-, 3-, 5-, and 10-year periods.

The index includes companies from various sectors, but it is often associated with technology companies. Many of the world’s leading tech giants, including Apple (NSDQ: AAPL), Amazon (NSDQ: AMXN), Microsoft (NSDQ: MSFT), and Alphabet (NSDQ: GOOG), are part of this index.

Risk and Reward

My advice to my friend was that he wasn’t looking at the risk aspect of changing investments.

When we are younger, we can afford to take bigger risks with our investments. That’s because we have more years ahead in which we can recover. As we get older and will soon need to rely on those investments, we need to shift away from riskier investments.

Since 2000, the Nasdaq 100 has experienced significant declines. During those years, the worst annual return for the Nasdaq 100 occurred in 2008, during the global financial crisis, with a staggering decline of -41.89%. Additionally, the years 2002 and 2000 also saw significant negative returns, with -37.58% and -36.84%, respectively.

In each of those years, the VTSAX performed better than the Nasdaq 100. In 2000, 2002, and 2008 the VTSAX outperformed the Nasdaq 100 by 27.8%, 15.5%, and 14.9% respectively.

My friend was only looking at the long-term returns, and not paying much attention to the short-term risks. In retirement, those risks can be far more consequential.

Know Your Time Horizon

The reason the Nasdaq 100 has outperformed the VTSAX is that over a longer time horizon, the up years more than offset the down years. However, when we are at or near retirement, we may not have time to come back from a 40% decline in our retirement portfolio.

My advice to my friend was the opposite of what he was expecting. The time to invest heavily in the Nasdaq 100 was when he was 30 years younger. Now is the time to start protecting the assets he needs in retirement. This is money he depends on to live.

You know the old saying “Higher risk, but higher reward.” I always offer an addendum to that for people approaching retirement. Don’t forget about the first part of that equation. Higher risk can punish you immensely in retirement. Sure, it’s nice to imagine 40% returns, but you can’t afford the downside risk.

My friend mentioned that he was only contemplating this for a small part of his portfolio. He stated that he had an emergency fund and other assets in income stocks. In that case—assuming your retirement needs are adequately covered—then I believe it’s acceptable to take on greater risk for a portion of your portfolio. Just ensure it’s a portion you won’t need anytime soon for your basic needs.

Otherwise, my advice to those around retirement age is to ensure that you are reducing your overall risk profile over time.

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