Don’t Be Too Conservative With Your Investments
For every investor that is too aggressive with their investments and takes too much risk, there are probably a hundred investors who don’t take enough risk. Staying on the right investing path means finding the right level of risk and sticking with it.
Long term rates of return for the stock market range from 8-12% per year. If you get too conservative, you will cut that rate of return significantly and greatly reduce the growth in your portfolio. To illustrate the effect of a conservative portfolio over time, let’s look at the total return of your investments if you earned 5 percent versus 10 percent. If you invested $100,000 at 5% for 25 years, you’d have about $340,000, which is a total return of 239%. However, if you invested the same $100,000 at 10% for 25 years, you’d end up with $1,080,000! That’s a return of 983% and about 750% more than your conservative portfolio.
We’ve met hundreds of investors who have been scared off by volatile markets or are just too conservative to even invest in stocks. Their retirement hopes and dreams will likely suffer because of this investing mistake.
Another area we see this conservative nature is from older people, close to or in retirement age. Most people that retire think they should be in all fixed income (bonds, money markets, CDs, savings accounts), but in reality these people should be investing as they are going to live to 90, which means they have so much time left to invest that they should have a more balanced portfolio that includes a variety of stock classes.
In summary, even if you have a conservative investing approach, try to take appropriate risks and put yourself in position to capitalize on the stock market’s long term growth by investing in an appropriate mix of stocks, bonds and real estate. It is appropriate to take more risk during younger years and reduce it slightly as you get older and into retirement.
Related posts:
