The Risks of Not Investing & Necessary Risk to Achieve Your Long-term Goals

DEWITT, Mich. - May 11, 2021 - PRLog -- Since the turn of the century, we've been reminded of one of the risks of investing – the risk of market declines. Although market declines can't be prevented, buying quality investments and diversifying your portfolio can help you experience less volatility and show more consistent performance over time.

It's all about income

Whether it is 10 years or 40 years away, retirement is probably one of your long-term financial goals. So how much money do you need? The rule of 25 is a quick rule of thumb. Take the amount of money you need from your portfolio each year and multiply that number by 25. That's about how much you need your portfolio to be worth when you retire.

Difficult to meet long-term goals with short-term investments

Taking an appropriate amount of market risk may be necessary because it's difficult to meet long-term goals with only short-term investments. The most quoted rule of investing – the "Rule of 72" – illustrates this point. Take 72 and divide it by your expected return, and that's about how long it will take your money to double. Therefore, earning a 7% return will take just over 10 years to double, while a 3% return will take about 24 years, and a 1% return will take more than 70 years to double.

So what can investors do?

Focus on the long term. Typically, market declines are not what derail our investment strategy – it's our reactions to those declines. While stocks certainly can be volatile in the short term, the long-term trend for stocks has been positive. And to increase the diversification of your portfolio, we recommend holding some of it in fixed-income investments. Your specific mix of stocks and bonds will be driven primarily by your unique financial goals, comfort with risk and retirement timeline.

Be disciplined. While working toward your goals, it's important to remain focused and adhere to your long-term strategy.

Use market declines to your advantage. Consider systematic investing, which is investing a set amount every month, regardless of what the market is doing, to help take emotions out of the equation. This strategy can help turn market declines into opportunities.

Remember why you're investing

Any time you go through periods of market fluctuations, it's important to remember why you're investing – to reach your financial goals. Although investing poses risks, such as market declines, not investing also can be a risk to your financial future. The key is finding balance – taking on an appropriate amount of risk to ensure you have enough growth potential to reach your long-term goals.