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Is Investing Worth The Risk?
How many times have you asked yourself that question? Many of the decisions you make - changing jobs, moving to a new home, buying a car - involve risks.
Just like those decisions, the decision to invest also involves risk, including the possible loss of money. However, making an informed decision to assume some risk also creates the opportunity for increased rewards. The higher the risk, the higher the potential for reward. The lower the risk, the lower the potential for reward. What investments are right for you depends on your: Retirement goals - You'll need 75% or more of your pre-retirement income to maintain your lifestyle when you retire.
Time horizon - If you've got ten or more years until retirement, you may want to take more risk since you have the benefit of time on your side. The key is starting early.
By now, you've probably read or seen on television news about how some retirement plan participants lost most or all of their portfolios.
So how did these hard working, retirement-conscious people lose their entire nest egg in the blink of an eye?
The answer is simple. They didn't diversify.
The participants who lost everything invested 100% or a majority of their retirement assets in one investment option or a single investment like company stock. In other words, they put all of their eggs in one basket. Therefore, when the investment fell in value, so did their entire retirement account. However, if these employees had diversified their investments (if permitted by their plan,) the impact on their retirement savings would not have been so significant, and so devastating.
So, what exactly is diversification?
Diversification, or investing in a variety of different asset classes (stocks, bonds, etc.), helps to spread risk and helps you to avoid putting all of your eggs in one basket. Experts agree that a balance of different asset classes is the best route to meet your retirement goals.
Studies show that over 90% of the total return variation of your portfolio is determined by your asset allocation decisions.
Free reviewCall Helen Hou from the Principal Financial Group for a no-cost, no-obligation review of your retirement plan investments.