Are your Goals at Risk?

 Are your Goals at Risk?


When people talk about investment risk, they’re usually referring to the variability associated with a given investment (those ups and downs in value).  Based on variability, professionals and laymen alike will say that stock is riskier than CDs because stocks go up and down in value while CDs pay a steady, reliable interest rate. To put it another way, the general assumption is that variability equals risk, and a lack of variability equals safety.  This oversimplification is nonsense because it doesn’t take the investor’s objective into account, which is the reason a person invests in the first place.

Risk is inevitable in any endeavor

I first fell in love with planning when I was an officer in the U.S. Marines.  They wisely taught me that risk is inevitable (especially in their line of work) and since risk is inevitable, they taught me to tirelessly identify and understand risk so I could manage it as I developed a plan.  In the Marines, risk was always linked to the desired outcome.  In this way, even the youngest war fighter understands risk far better than many of the most sophisticated investors. 

Falling short of your goal is the real risk

“Reliable” investments, like CDs, can be safe or risky depending on the desired outcome.  If a person has $5,000,000 saved for retirement, needs an average $150,000 per year in income for 25 years, has insurance for everything, and zero desire to bless their kids; CDs would give them a high probability of achieving their goal, and would be considered “safe”.  In a more typical scenario, however, if a person has $500,000 saved for retirement, gaps in their insurance (usually long-term care insurance), a desire to bless their kids, and an income need of $150,000 per year; those same CDs become extremely risky because they will never achieve the desired outcome, even though the returns were steady and reliable.

Let me give you the key

The key is to get as clear as possible on what you want.  Understanding what you really want or value will help you determine whether or not your goal is worth the inevitable risk associated with achieving it.  In my experience, most investors haven’t taken the time to get clear on what they would like their investing to accomplish.  Without a clearly defined outcome, they can’t know how much risk is worth taking, so they put their resources in the “safest” option available.  This is the highest purpose of a financial advisor.  They can listen and help you distill your values and desires into well defined, achievable financial goals, and help you navigate the long list of possible risks out there (especially the ones you haven’t thought about).  Once you’re aware of what’s important to you, and inevitable risks associated with achieving your desires, your advisor can help you align all your financial resources so you can feel confident knowing that you’re moving toward your goals even in the midst of market ups and downs.