VIDEO: Retirement Investing Pitfall #2 – Taking Too Much Risk

 

In today’s video of our series entitled Retirement Investing Pitfalls (derived from my book “Plan Smart, Retire Right”), I am going to briefly discuss a 2nd commonly encountered pitfall many investors make: Taking Too Much Risk. Risk involves the chance that the investments you choose can lose or perform differently than you anticipate.

During the bull market days of the mid 1990s and early 2000s, money poured into equities—often into risky tech and internet stocks. The value stocks trading low had many of their investors wanting to chase higher returns. When a bear market followed the tragic events of 9/11, the bottom fell out of the tech sector; meanwhile, many value stocks weathered the storm. Investors who took on too much risk—not wanting to miss out on the dot-com boom—most likely saw their portfolios take a severe beating.

Portfolio risk can be deceptive. Holding a diverse mix of stocks, bonds, and alternatives may seem adequate for managing risk, but it’s just one component. If you own correlated investments — meaning they move in similar patterns — then you could be jeopardizing your portfolio. If the investments respond to market declines all in the same way, you may increase the risk of losing all your money. The objective is to take on the amount of risk that is aligned with your long-term goals.