Why is Investment Planning so Important?
Many people know it is important to invest for their future, and that they will need to invest if they want to have a retirement that they desire. But what in retirement makes investment planning so important? There are a couple of main themes here that we will touch on one being risk and the second being how investment planning works hand in hand with your potential income plan for retirement.
Understanding Risk in Investment Planning
In the world of investment planning, there is one theme that is always prevalent and that is risk. There are many questions that correspond with risk such as, how much risk am I willing to take? This can be defined as what you feel good about as far as growth and loss. Remember, growth feels good, but can you emotionally handle a certain amount of loss? While we know that the risk of loss is ever present it is important to identify the level of risk you can handle. If you cannot handle a loss of 30% of your portfolio it is important that your investment planning takes that into consideration. Many wealth management firms will have you do a risk assessment to find the right fit for you and what you are comfortable with.
Balancing Risk Tolerance with Financial Viability
The second question becomes more interesting, in your investment planning you need to take that while you may be able to emotionally handle a certain amount of risk, your plan may not be able to support the risk you are taking. For example, if a loss of 25% in your portfolio will derail your income needs, you need to take that into consideration when developing your investment plan. This is something that is very important as you enter retirement, taking more risk than what you can afford to take can become a major issue in your retirement plans.
Risk vs Reward
Generally speaking the more risk, you take the more reward you can receive, so therefore it is important to find the amount of growth you will need in your investment plan to maintain your lifestyle and reach your goals. Ideally, one would want to do this with the least amount of risk possible, for example, if your target was to earn 6%, how do you create an investment plan that mitigates as much risk as possible to accomplish this goal? This will be paramount to how your income plan in retirement will work, as your investment planning and your income planning many times will go hand in hand when you reach that retirement threshold.
The Essential Role of Investment Planning in Financial Life
In conclusion, investment planning is a very important part of our financial lives from the growth and accumulation phase to the retirement phase and the phases in-between. It is important that either you, or your financial advisor/wealth management specialist develop an investment plan that is there to achieve your goals with your risk tolerance and risk exposure being a significant factor in determining this.
This is being provided for informational purposes only. The views expressed are those of Silver State Wealth Management and do not necessarily reflect the views of Mutual Advisors, LLC, or any of its affiliates. Investment advisory services offered through Mutual Advisors, LLC, DBA Silver State Wealth Management, an SEC registered investment adviser.