If you’ve been thinking about retirement planning, you’ve undoubtedly considered how much investment risk is appropriate for your financial goals – and your comfort level.
Every investment has risks. The usual pattern is that when the stock market goes up, the bond market goes down (usually due to the Federal Reserve Bank increasing interest rates), but market cycles can be very strange indeed. In 2018, both the stock and bond markets lost money. This is precisely why everyone needs a solid education in investment planning, whether working alone or with an advisor, in order to determine risk tolerance and, on that basis, the right asset allocation to maximize after-tax risk-adjusted return.
Many investors fear volatility in the market because they worry a market downturn would erase their hard-earned savings, but there is no need to fear volatility. Yes, it represents risk in the short-term, but it also creates opportunities for investors with a long-term horizon to get into the market at attractive price levels.
Let’s take a look at a few sample investments and what they have returned over time: