If you are not prepared to take risks with how you invest your retirement money, you may just be exposing yourself to a different risk – inflation. Over time, inflation erodes the value of savings, which is why you need to ensure that your money grows faster than inflation can eat it away.
The best investment advice Sygnia Portfolio Manager* Monique Davidson ever received was that your risk should match your goal when you are investing.
“I’m a risk-averse individual, so I understand investors who are very cautious,” Davidson says. “However, I do believe it is necessary to think consciously about risk.”
Davidson points out that every investment comes with a measure of risk, and you need to match that risk with your objectives. When you do this correctly, you will be rewarded.
She says that because young investors saving for retirement have time on their side, they can afford to take a lot more risk by investing mainly in listed shares and listed property, and taking these risks will lead to the biggest rewards over the long term.
“You may not necessarily like risk, but you have to realise that a certain amount of risk is required to meet your goals,” she explains.
If you are not prepared to take risks with how you invest your retirement money, you may just be exposing yourself to a different risk – inflation. Over time, inflation erodes the value of savings, which is why you need to ensure that your money grows faster than inflation can eat it away.
“Your investment may well deliver consistent returns if you are too conservative in your approach, but in the longer term it will not meet your investment goals,” Davidson explains. “And you won’t be able to claim back the growth you have lost.”
On the other hand, if you have a short-term investment goal, such as saving for a deposit on a house, you will need to moderate your risk. In such cases, you should preserve capital by investing in cash and bonds so that it is available when you need it.
“You have to match your investment risk to your goal,” Davidson says. “If the risks are too high over the short term, it can significantly erode your capital.”