One of a suite of individual retirement education modules created for Nationwide Financial, the Risks Type Education Module helps a plan participant understand the risks involved in investing.
The module system gives retirement specialists the ability to create longer, fully customizable presentations by allowing them to mix, match and combine individual modules in the suite. This enables the sales force a greater flexibility in planning meetings and answering individual plan and participant needs.
Which is riskier, investing in the stock market or keeping your money in a savings account?Before you answer, consider this: risk comes in many different forms. While it may seem that investing in the market is the bigger gamble, stowing cash in a savings account or safety deposit box may simply expose you to a different kind of risk. Today we’re going to learn about three of common types of risk facing most investors.
The first risk may be the most obvious: Market Risk. Market risk is sometimes confused with market volatility, which simply refers to the up-and-down movement in the value of investments. In a highly volatile market, investment values typically change frequently and unexpectedly, causing some investors to panic. However, high volatility does not necessarily mean high market risk. In most cases, participants in deferred-comp accounts are investing for the long term and can therefore afford to ride out the storm. The key is to establish a sound investing strategy and then follow that strategy rather than making emotional decisions.
Another risk to consider is Inflation Risk or Purchasing Power Risk, which refers to the possibility that your money won’t buy as much in the future as it does now. Since the 1930s, the average inflation rate in the U.S. has been about 4%. Which means that to keep pace with inflation, an account would have needed to earn an average annual rate of return of 4% just to maintain the same purchasing power.To put it another way, what you used to be able to buy for one dollar in 1991 costs about two dollars now. When you consider that the average retirement lasts about 20 years, it’s easy to see why putting your money in a savings account or investing too conservatively could potentially expose you to greater risk over time than a balanced portfolio of investments. Past performance cannot guarantee future results, but over the long term, investments in stocks and mutual funds of stocks have tended to outperform inflation.
Longevity Risk is the risk of outliving your resources or not having enough money to live on comfortably through retirement. Because retirees on average are living longer and healthier lives, it’s important to consider how long you may need your money to last in retirement. Keep in mind that your Pension and Social Security income are part of the fixed-return portion of your complete retirement portfolio. To help stretch your income, you may want to consider keeping some of your deferred compensation money invested in a mix of funds that are designed to continue to grow your assets throughout your retirement years. While no investment is completely without risk, understanding the potential risks you face can help you make more informed decisions as you prepare for your financial future.