The thought of low risk investments makes many people feel comfortable about their money.
I remember the first time I stood at the top of the high dive at the rec center pool, I was a nervous wreck.
Until that moment, I never realized how afraid of heights I really was.
For many that have never invested before, they feel this same apprehensive feeling about where they place their money.
With the rising cost of living, it’s imperative that we invest (preferably with the lowest risk possible) to generate high yield returns.
High rates of return on your investments are wonderful because it means you don’t have to invest as much capital to reach your investing goals. Yet, the higher return you want, the more risk you’ll have to accept.
As you get closer to retirement (or if you are managing investments for your high school senior’s college fund), your appetite for risk drops precipitously. You simply cannot afford to see a huge drop in the market right before the time you need to begin withdrawing funds from the investment accounts.
If you find yourself in this camp, you may need to shift a large portion of your portfolio to low risk investments – or even look for ways to earn a decent return with no risk at all. Low risk investments will generate a lower return because you aren’t taking as much risk, but you might be okay with that at this point in your life. When you’re nearing retirement, capital preservation is more important that astronomical growth rates. You need to know your account won’t drop 25% in a year and severely impact your investing goals.