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“I don’t want a lot of risk”. I hear this often when talking with people about investments and their portfolios. You have probably heard this as well…in fact, at some point, you have probably felt or expressed this too! But, have you ever thought about what is ‘risk’?
Typically, the above statement means something to the effect of not wanting to lose money. I think we all get that point. However, are you familiar with all of the different types of risk that could cause an investment to go down? Let’s review some…
While there are additional types of risks beyond the above list, the takeaways are 1) All investing incurs some level of risk; 2) by avoiding one type, generally another type of risk is then included; 3) there are a lot of variables to consider when investing money; and 4) for investments to grow (which usually ties in to achieving financial goals), a certain level of risk is necessary to have the potential to get the desired returns. However, based on your age, financial goals, etc. we can choose your level of risk and what type of risk is best to take given your situation. I’m not trying to cause concern or encourage you to put all of your money in cash (which would bring about another type of risk, namely inflation risk). Rather, my hope is that you understand that there is no “silver-bullet” or simply one investment that will eliminate risk. This is why I recommend various types of investments for your portfolio to diversify the risks in an effort to generate the desired returns.