Be aware of risks of investing [UPDATED]Published 9:53am Monday, March 25, 2013 Updated 11:57am Monday, March 25, 2013
You’ve no doubt heard about the risks associated with investing. This investment carries this type of risk, while that investment carries another one. And it is certainly true that all investments do involve some form of risk. But what about not investing? Isn’t there some risk associated with that, too?
In fact, by staying on the investment sidelines, or at least by avoiding long-term, growth-oriented investments, you may incur several risks. Here are some to consider:
• You might not keep up with inflation. If you put all your money under the proverbial “mattress,” or, more realistically, you keep it all in “cash” instruments and very short-term investments, you might think you are “playing it safe.” After all, you might reason, your principal is protected, so even if you don’t really make any money, you’re not losing it, either. But that’s not strictly true, because if your money is in investment vehicles that don’t even keep up with inflation, you can lose ground. In fact, even at a relatively mild three percent annual inflation rate, your purchasing power will decline by about half in just 25 years.
• You might outlive your money. For a 65-year-old couple, there’s a 50 percent chance that one spouse will live past age 90, according to the Society of Actuaries. This statistic suggests that you may need your investments to help provide enough income to sustain you for two, or even three, decades in retirement.
• You might not be able to maintain your financial independence. Even if you don’t totally run out of money, you could end up scrimping by — or, even worse, you could become somewhat dependent on your grown children for financial assistance.
For most people, this prospect is unacceptable. Consequently, you’ll want to make appropriate financial decisions to help maintain your financial independence.
• You might not be able to retire on your terms. You would probably like to decide when you retire and how you’ll retire – that is, what sort of lifestyle you’ll pursue during retirement. But both these choices may be taken out of your hands if you haven’t invested enough to retire on your own terms.
• You might not be able to leave the type of legacy you desire. Like most people, you would probably like to be able to leave something behind to your family and to those charitable organizations you support. You can help create this type of legacy through the appropriate legal vehicles – i.e., a will, a living trust and so on – but you’ll still need to fund these mechanisms somehow. And that means you’ll need to draw on all your financial assets, including your investments.
Work with your financial advisor to determine the mixture of growth and income investments you need during your working years and as you move toward retirement to help you meet your retirement goals.
However you do it, get into the habit of investing, and never lose it — because the risks of not investing are just too great.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor and has been submitted by Stephen Vigesaa, Fergus Falls.