5 Ways to Reduce Investment Risk While Taking More Risk in Life
Risk is a funny word. If you ask ten people to define it, you will almost certainly get ten different responses. Different individuals are simply comfortable with varying levels of risk in their life, and that goes for investments as well.
Is it possible to limit the amount of risk you are taking with your money, while simultaneously increasing the joy and pleasure that you enjoy in your daily life? Well, we certainly think so.
You might be in your 50s, but you still have many good years ahead of you. Let’s look at five different ways that a young baby boomer like yourself can reduce investment risk while taking on more risk in life.
Understand What Risk Really Is
You may be the head of your own company, manage a staff, and embrace risk on many fronts in your own life. However, this does not mean that you understand what investment risk means.
Risk takes in into account many components, such as the way that you weight your assets within a portfolio to the amount of dough that you are willing to lose.
Let’s face it – You did not get where you are today without losing a bit along the way. At the same time, you have arrived on the solid ground precisely because you know just when to pull back the reigns a bit. That is the best definition of risk that we can provide you with.
You need to have confidence that no matter what the results are in the future, you will be comfortable with the outcome. If you can do that, you will know just how to balance the risks you take with your money with the risks that you take with your life.
There’s More to It Than Just Volatility
Many young baby boomers look too much at volatility in the markets to define their risk level. There are simply too many other points related to risk that you must consider.
Take inflation as an example. Those of us in our 50’s can remember the days of 40 cents a gallon gasoline. That spiked some ten years ago to reach nearly five bucks a gallon. While it has stabilized somewhat today, this same type of volatility defines the risk that inflation brings to the table.
You simply never know when the dollar you have in your pocket today becomes worth just 75 cents due to factors outside your control. You might think that there is nothing you can do about it, but that is simply not the truth.
By diversifying your risk, you might lose that 25 cents here but gain it back over there. It is that method of give and take in life that has brought you this far, and that is what it will take to get you to the finish line relatively unscathed.
Remain Calm and Collected
Remember the day a long time ago when you lost that important client? You probably felt that your life in the business was over and that you would soon find yourself in the unemployment line! That day came and went, and now here you are, on top, looking forward to the next 20 years of positive returns, both in your personal and professional lives.
This is because you have learned how to remain calm and collected when the daily stresses of life hit you from every side. This is the same mentality you need to bring to your investments. You need to take some risk. Be calm and stay collected when those risks do not pay off right away.
Remember that President Lincoln lost so many elections for public office that is a wonder he didn’t run into a hole and hide. Take your lumps now, and you will have clear skin and a fat bank account in the future!
What Is Your Risk Tolerance Level?
Everyone has that buddy that works during the week and jumps off tall buildings for fun every weekend. That might not be the type of risk that you are looking for in life, and that is ok!
You need to find your tolerance for risk that allows you to sleep at night. Now that you’re in your 50s, you might not want to chase those once in a lifetime investments that are a ‘sure bet.’
At the same time, you might have accumulated more than enough in life and have little to tie you down, and so you are willing to engage in a bit more risk than the average young baby boomer. Just find out what your comfort level is and run with it.
Testing Your Tolerance
If you think you are ready to take on more risk, both in life and in terms of your investments, start out small and see how you react. Temper your successes with your failures and see how you react to each. It is this type of balance that will help you determine if you can up the game a bit, or if you need to dial it back.
Life is like that. You will go through a series of ups and downs. The key is to end up on the top of a mountain. With a bit of foresight, that is exactly where you’ll be.
Money must be treated with respect. You have been taught that your entire life. It is your desire to assemble quite a nest egg before your run in the employment world is over. That is certainly an admirable goal.
To get where you are heading, you may need to take on some risk along the way. Only do so to the extent that you are comfortable, however, in order to avoid a bumpy ending when you arrive at your destination.
The five concepts discussed in this article should give you some much-needed fuel for thought. Apply them to your investment portfolio and finish this race strong.
Remember – Retirement is simply a state of mind. It does not mean you have to stop taking risks in life. Get out there and enjoy every minute of the rest of your days!