As we all know, Wall Street conditions can be unpredictable. Even in times of relative stability, we all know it won’t last forever. It is always best to look ahead to the future and prepare for every situation, particularly when it comes to your retirement fund.
Review your asset allocations. Each investor has their own risk tolerance, which must be balanced with their desire for growth. You have likely engaged in this discussion with your financial planner many times. But if you’re beginning to feel concerned about the future of the stock market, the first thing you should do is review your assets yet again. Is your portfolio diversified across a mix of stocks and bonds? Have you included cash equivalents among your asset? Even if you conclude that you feel safe about your strategy and nothing need to change, you will sleep better at night having reviewed it.
Ask yourself, “What is my worst-case scenario?” You can’t always predict the stock market, but you can take stock of your own risks. How much money could you actually stand to lose in a serious downturn? You certainly don’t want to lose everything you have, but how much is too much? If you find that you’re over-invested in risky assets, you might consider a less risky approach.
What is the impact of a major loss? Let’s assume you lost everything you have invested in high-risk vehicles. Can you live on the income from your lower-risk investments? If so, you might feel comfortable with your current level of risk. On the other hand, if you wouldn’t be left with a dime to your name, you might be risking too much.
As you already know, investments that carry a higher risk usually carry the greater potential for growth. But you don’t want to gamble with your entire future. Talk to your financial advisor about placing some of your assets in lower-risk vehicles, and keep in mind that your risk tolerance and desire for growth can each change over time.
