FINANCIAL FOCUS
KRISTI TREVINO Financial Advisor Edward Jones
How much risk should you take before retirement ?
If you ’ re planning to retire in just a few years , you may be getting excited about this next phase of your life . However , your ability to enjoy retirement fully will depend , at least partially , on the resources you can draw from your investment portfolio . So , while you still have time to act , ask yourself if you ’ re comfortable with your portfolio ’ s risk level .
Your relationship with risk can change noticeably over time . When you started saving for retirement , you may have been willing to take on more investment risk , which translated into a relatively high percentage of stocks and stock-based mutual funds in your investment portfolio . As you know , stocks offer the potential for greater returns than other assets – such as bonds and certificates of deposit ( CDs ) – but they are also typically more volatile and carry more risk . But when you were many decades away from retirement , you had sufficient time to recover from market fluctuations . ( Of course , there are no guarantees – it ’ s possible that some stocks will lose value and never regain it .)
Now , fast forward to where you are now – closing in on retirement . Even at this stage of your life – and , in fact , even during your retirement – you will need some growth-oriented investments to help stay ahead of inflation . Over time , even a low inflation rate , such as we ’ ve had the past several years , can erode your purchasing power .
So , the issue isn ’ t this : “ Should I get rid of all my risk ?” You shouldn ’ t – and , in fact , you couldn ’ t , because all investments , even the ones considered most “ conservative ,” contain some type of risk , even if it isn ’ t the risk of loss of principal . For instance , some investments run the risk of not keeping up with inflation . Instead , ask yourself these questions : “ How much risk should I take within my portfolio ?” “ How much risk do I actually need to achieve my goals in retirement ?”
Of course , there are no one-size-fits-all answers . You ’ ll need to look at your investment portfolio to see if it ’ s positioned to provide you with the income you ’ ll require in your retirement years . You might have initially based your financial strategy on a specific type of retirement lifestyle , but now that you ’ re nearing retirement , perhaps you ’ ve changed your mind . Your anticipated new lifestyle might require either more or less income
than you had originally projected – and if that ’ s the case , you may need to adjust the risk level in your portfolio or make other adjustments .
For example , suppose you had initially envisioned a rather quiet retirement , sticking around your home , volunteering and spending time with your grandchildren . But in recent years – and especially since the confinement many of us have felt during the COVID-19 pandemic – you may have thought that you ’ d now like to travel extensively . To achieve this goal , which will likely cost more than your original one , you may have to work longer , or invest more each year until you retire , or seek a higher return on your investments – which means accepting more risk .
As you can see , managing risk is a balancing act – and you may need to make some tough choices . But as long as you ’ re aware of how much risk you can take , and how much risk you may need to take to reach your goals , you can develop a strategy that aligns with your objectives .
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor . Edward Jones , Member SIPC
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