Retirement Planning For Dummies

Chapter 5

Gauging Your Appetite for Risk

IN THIS CHAPTER

Learning about typical investment returns

Grasping the concept of asset classes

Determining how much risk you can tolerate

Completing risk-assessment questionnaires

Understanding the risk and expected returns for various investment types

Retirement planning requires a careful balance of risk and return. If you play it too safe and don’t take enough risk, your results may not be enough to give you the returns you desire. On the other hand, if you take on too much risk, you might suffer more volatility than you can handle.

Getting the right mix of risk and return is a pivotal element of a successful retirement plan. No risk, no gain. But what’s the right amount of risk to take? What is a reasonable return? Although much of the future is unknown, especially over a span of 20 or 30 years, a general understanding of the risks and returns associated with different types of investments, or asset classes, is important.

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