Which investment approach is favored for maximizing wealth accumulation leading up to retirement?

Building a balanced portfolio with stocks and bonds is favored for maximizing wealth accumulation leading up to retirement because it harnesses the growth potential of stocks alongside the stability provided by bonds. Stocks typically offer higher returns over the long term compared to other asset classes, which can significantly enhance wealth accumulation.

As individuals approach retirement, having a mix of assets allows them to benefit from the growth potential of equities while also managing risk. Bonds can provide income and help preserve capital, which is crucial for a balanced approach to investing. This strategy enables individuals to withstand market fluctuations better, as the performance of stocks and bonds often behaves differently under varying economic conditions.

In contrast, focusing entirely on short-term bonds tends to yield lower returns, limiting the compounding effect necessary for wealth growth. Investing primarily in risk-free assets does not capitalize on the potential for higher returns that equities can provide, and hoarding cash in savings accounts usually results in minimal interest earned, leading to a loss of purchasing power over time due to inflation. A balanced portfolio thus represents a prudent strategy for long-term wealth accumulation as retirement approaches.