Investment Risk
Ever think about the risks you take in a given day? There are the obvious ones, like driving, playing hooky from work or school, leaving your sunroof open, buying the big bag of M&Ms, or maybe trusting that your son won’t invite his friend’s mom into the house while you’re in your boxers…not that that would ever happen to anyone. What about these: insurability, inflation, interest rate, or investment risk?
Let’s talk investment risk for a moment. Simply put, investment risk could be defined as the chance that an investment’s actual return will be different than expected. If your retirement savings is invested in the stock market, then we can all agree, you’re taking some degree of risk. To which some of you may say, “Aha! See! That’s why my money’s in cash!” Then let me introduce you to another type of risk: opportunity cost risk.
Risk. It’s an unavoidable consideration. You’re going to face it one way or another. It’s the proverbial double-edged sword. It can be hard to live with, but can you afford to live without it? And I’m sure a host of other catch phrases might apply here. And please know, this is not a topic we’re going to solve in a blog post. Rather, investment risk is a topic you should discuss with your advisor as he or she should be in the best position to give you such counsel. But I will offer food for thought:
Why take more risk than you need to?
That’s somewhat of a rhetorical question as I wouldn’t likely recommend taking more risk than you need to. But if you really want to answer that question, you’ll first have to define the word “need”.
[Qualifier: We’re talking about risk in the context of investing and saving for retirement. And then there’s the matter of allocation and diversification of stocks, bonds and cash equivalents. That’s a conversation for another blog.]
So, to help us define our need:
- What are my/our goals for retirement?
- When do I/we plan to retire?
- How much will I/we need to live off of during retirement?
- What about college funding or weddings?
- What about health insurance after I/we retire?
- What would happen to my family if I/we were to pass away this year?
And no doubt, this is not an all-inclusive list. While reading these, a host of other questions may have come to mind…which is good. That was the goal of the blog in the first place. The above, and the ones that came to your mind, will help you define your need. And the answers to those questions will serve as the infrastructure on which to build an investment strategy you believe will help you accomplish your goals.
Ask your questions. Make a plan. Start today.
CapSouth Partners is a registered Investment Advisor
