Risk And Your Retirement Investment Strategy
Your retirement investment strategy needs to be tailor-made with your financial capabilities
and retirement goals in mind, and has to involve just the right amount of risk based on your own risk tolerance. Conventional investment wisdom dictates that you should taper off how risky your entire portfolio is as you grow older, but it does not mean that you should have zero portfolio risk twenty to thirty years after retirement where no risk usually means very little profit. Here are some things you need to think about, risk-wise, when it comes to your retirement investment strategy.
Too much risk, no matter how large the potential gains are, is inadvisable. You could stand to lose a huge chunk of your retirement funds and run out of money some time after you quit the workforce. Also, it has been observed that investors who have reached what is called, financial critical mass, (which simply means they have enough cash to retire on) have done so by saving money in increments over a long span of time. While you still work and are years away from retiring, you can still recover from investment losses due to higher risks. You can still recover from any financial mistakes by putting in more hours, finding another job, or applying for a loan. When you are near retirement, you will need to lower overall risk by gradually steering more of your portfolio away from stocks. Despite the possibility of lower gains due to conservative investing, lower portfolio risk is almost always the best way to go for older workers and investors.
Being too conservative is also ill-advised. Some older investors go to extremes and place huge chunks of their money in ordinary savings accounts due to the relative safety it provides. People who do this do not take on enough risk, and may not have a financially secure retirement because of longer life expectancies and not enough funds. You may think that placing your cash in zero to low-risk venues and investments will buffer your funds from market downturns, you should still have portfolio risk in the form of stocks and other riskier investments, which will help you outpace inflation and help you accumulate enough money to live on when you retire.
If you are having trouble identifying how much risk you can tolerate, as well as the proper investments for a retirement portfolio that follows your risk tolerance, you can consider hiring an investment advisor who specializes in financial planning for senior investors. These professionals can help you transition smoothly into retirement with a set of investments that consider numerous factors, such as risk and your retirement investment strategy, to help generate adequate funds for your golden years.
by: Katherine Smith
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