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All investments carry risk. When
you make investments, you need to decide which risks you are comfortable
with, and which ones you're not.
Most people define risk as the loss of capital. You bought a stock for $100 and it's now worth only $90. But a far more insidious risk is the loss of purchasing power from inflation. Your mutual fund statements show you how well (or poorly) your investments performed. Your tax return shows you how much in taxes you paid. But you never receive anything in writing reminding you that you lost purchasing power because of inflation. Retired folks need to be very aware of this, or their standard of living will decline during 20-30 years of retirement. |
There are literally dozens of
different investment risks. Some self-explanatory examples are: credit
risk, political risk, reinvestment risk and industry risk. Many risks
can be reduced or eliminated through diversification, but some risks will
always be there.
Do you know what risks are in your investment portfolio? You may be very surprised. The last five weeks of market turmoil may have given you a suggestion of what risks you're carrying. The purpose of the investment policy statement part of your financial plan is to determine your tolerance for risk, and design a portfolio that will achieve the growth you need within your risk comfort zone. |
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2359 Salisbury Road Westbury, NY 11590 (888) 200-9670 |