The main reason that people plan for anything in life is to mitigate risk. We plan on how much gas we will need to reach our destination or else we may run out. We plan for how much money we will need to buy our weekly groceries or else we may go hungry. We plan for how much time we need to perform tasks and meet deadlines to avoid being late and not delivering. Planning in general helps us to achieve even the smallest of goals while simultaneously decreasing the risk of not achieving them.
When it comes to retirement, one of the biggest events to plan for in anyone's life, there are three major risks you must fully recognize. A recent article states the 3 major risks:
- Investment Risk- is described as the chance that your investments can gain and lose value in reaction to market fluctuations. It is important to speak with your advisor about how much risk you are willing to take on. You need to be able to live while your investments may fluctuate.
- Shortfall Risk- is described as the chance that you may not meet your investment cash flow or income needs in order to maintain your standard of living in retirement. This can be assessed easily by your advisor. Standard of living should be discussed to ensure that your investments work for you in the most suitable way.
- Emotional Risk- is described as the chance that you will make impulsive or emotional decisions, even though you are aware of the facts involved with your investment risks. One of the primary reasons to work with an advisor is to gain perspective. Even the best surgeons don't operate on their family; so advisors can provide you objective perspective to make the best choices possible.
Caroline Hill, Financial Advisor
(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).