Retirement is the ultimate goal for most people, most of us already have a vision early on of what we want retirement to be like for us. Therefore, for years we strive and work hard at doing what we think are the “right things” that will put us in place of retiring when and the way we want to: with little to no changes in our lifestyle and, hopefully, be able to sustain that lifestyle for the rest of our lives without having to go back to work, unless we choose to do so.
Given the increasing costs seniors face once they stop working (i.e. housing, transportation, and healthcare to name just a few), it’s more crucial than ever to start saving for retirement early on. But saving early is only half of the equation, an equally important component is choosing the right investments to allow your money to grow, and with that comes choosing an investment approach that is in line with your goals and risk tolerance and to understand the risk of either having it or not. Often times and out of fear of losing the retirement they envision, some people prefer to “avoid risk” by not being in the market at all or by investing on safer investments (such as CDs); however, what they rarely understand is that all investing, as well as sitting on the sidelines, involves some levels of risk. Depending on current market conditions and your specific financial situation, those risks may be higher than you think. Let’s pull apart the misconception that being on the sidelines is less risky and won’t cause you to lose the money you have worked hard to retire on.
If you are sitting on the sidelines from the stock market or investing too conservatively, once you consider the impact of inflation and taxes, you will realize that you may actually be earning a negative real rate of return. Your savings will not only lose value over time, but there’s a big chance you could outlive your retirement savings.
Risk is often times misunderstood and too often associated solely with volatility, many investors don’t realize that by avoiding what they deem are riskier investments, they are missing potential opportunities like buying assets at a discount or selling them at a premium.
It is very important to understand that risk is a necessary component of investment that can work to your advantage, if managed correctly. The best defense against taking too much or too little risk in your investing is to have both, a well thought Financial Plan that is in line with your risk tolerance and financial goals, and a well-diversified portfolio. Keep in mind that life, goals, and circumstances change; therefore, it is imperative that your Financial Plan gets revised regularly (at least once a year) in order to make sure that you are on the right track to achieve your long-term goals.
Advisory services offered through EWG Elevate, Inc. dba Protection Point Advisors.
This represents a partial list of clients. They have not been compensated and were not selected based on duration, performance, account size.