All forms of investing carry at least some risk – much like life itself. For example, US securities are said to be some of the safer investments available, but nothing is completely free of risk. That’s why, instead of looking for “risk free” investments, which basically do not exist, your task is to determine your tolerance for risk while balancing that tolerance with a desire for growth.
We all know that the investments which carry the potential for larger returns are usually the ones that are subject to higher risk. Throughout the younger years, many people feel that larger risks are worth the potential for growth. These people have long careers ahead of them, and plenty of time to hopefully make up for any mistakes.
On the other hand, those approaching retirement begin to realize that riskier investments have a definite down side. Losing money is only one concern; now you don’t have much time to make up for mistakes before you retire. That’s why risks often seem more significant as we draw closer to retirement.
It goes without saying that we all want, and hope for, larger returns on our investments. But this desire should always be balanced with a strong dose of reality. Taking your age and target retirement date into account, ask yourself whether an investment is really likely to help you achieve your goals, and whether you have time to make up for any mistakes. Taking this perspective becomes invaluable for those who face retirement within the next five to ten years.
If you currently possess enough assets to provide for your retirement goals, you might wish to reserve a significant percentage in stable assets while allowing yourself a smaller percentage of those assets to pursue more aggressive investments. However, these ratios of “safer to riskier” will definitely change retirement approaches. Always make this decision by asking yourself how much you can actually afford to lose.
This is merely one of the reasons that we always say everyone should work with a qualified financial advisor throughout the years – not just in the few years before retirement. Over time, your tolerance for risk changes, and assets should be rebalanced.
Depending upon where you are in your career, and how long you have before retirement, we can help you balance your risk versus potential rewards. Make an appointment with us to discuss not only your current situation, but also your short-term and long-term goals.