May 11, 2010
One of the most important things to consider when investing your money is how much risk you should take. Typically the more risk you take the higher the reward can be. The drawback is with risk comes volatility, and with volatility comes good sized fluctuations in your account balance. When these fluctuations are working in your favor, you're happy. When they're working against you (see 2008) you're not.
The other side of the coin is not taking any risk. The good ole' certificate of deposit-put in $1,000 today, stop back a year later, collect your $10 in interest, and go purchase a couple $5 dollar foot longs.
It ultimately brings us back to this question-how much risk should I take? The answer to this includes many variables and is likely much more complex than I will go into today- but I think the question inspires another one that is the most important in determining how much risk you should take.
How long until I need this money?
If the account is for retirement, when do you plan on retiring? If the answer is 25 years, you can take a little more risk, if the answer is a year from now, you should think about staying more conservative. If the account is for your children to use for college, how long until that first tuition bill is coming? If you just attended their kindergarten graduation, you probably can afford to take some risk. If they are a senior in high school, you better scale it back some.
It can apply to any type of account in which you are investing and should always be one of the first questions you ask before you put your money to work. After you have answered question #1, stop in and visit us. We will try to help you answer question 2-as many as it takes, until we determine how much risk you should take.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).