Balance Your Risk and (Potential) Reward
As we all know, any form of investing will carry some risk. Securities in the US are said to be some of the safer investments available, but “safer” does not equal “completely safe”. There is no such thing as a 100 percent risk-free investment, so as you manage your assets, your task is to determine your risk tolerance and make decisions accordingly.
Of course, you also want to see some growth in your assets. You’ve probably learned that the investments carrying the highest potential for growth are usually the riskier ones. On the other hand, the safer investments are often the ones that grow more slowly. So, rather than making decisions based solely upon risk tolerance, you must balance that tolerance with your desire for growth. This equation will be different for each person, and will probably even change over time.
For example, we often see younger investors pursuing more aggressive (and risky) investment options. The idea is that they have time to make up for any losses before retirement. But then many of them will shift to a more conservative approach as retirement looms. At this point, there is less time to compensate for losses, and protection of capital is key.
We all want to see significant growth. No one has ever said, “Gosh, I retired with too much money in the bank!” But we do urge you to consider your age (and the time left in your career) when making investment decisions. This doesn’t always mean that you have to play it completely safe if you don’t prefer to, but perspective is always important.
Some soon-to-be retirees, who are comfortable with the assets they have accumulated for retirement, will choose to reserve a significant portion of those assets in more conservative vehicles. A smaller portion of the assets might still be used for more aggressive investing purposes. The key is to manage that ratio of “safe to risky” investments over the years, and re-consider the balance every few years.
This is one of the many reasons that working with an experienced financial advisor is key to long-term planning. We can help you ask yourself the important questions, and then make decisions to keep your investment practices in line with your goals and values. Schedule an appointment to discuss these issues, and we’ll help you decide if your portfolio is balanced appropriately.