Here’s The Only Retirement Risk That Really Matters To You
Chances are at some point in your retirement saving (or spending) life you’ve been asked a question or two about your appetite for risk. For a while, back in the era of Modern Portfolio Theory, the whole concept of “risk” and the investor was the cat’s pajamas.
In the old days they even had entire questionnaires designed to extract this information from you without you knowing it. That is until it became clear those little quizzes had about as much credibility as the ones found in the latest issue of Cosmo.
Still, it’s not unusual to find professionals (mostly of the older generation) that continue to use these devices. “Too many of the financial world are focused on wonkish ‘risk appetite’ profiles and scoring systems,” says Ami Shah, CEO of Steward in Washington DC.
These surveys generally fail because “it’s hard to think about how much risk you’re willing to take on in the abstract, before the rubber meets the road,” says Shah. “Saying you’re okay with ‘high risk’ in advance, and actually stomaching a 30% loss on your hard-earned nest egg, are two completely differing things.”
Indeed, looking only at what you’re willing to lose misses the point entirely on the real risk you face. Most people would be more than willing to take a few losses if it puts them in a better position to achieve their ultimate goal.
Read more @Forbes
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