From
Your Perspective:
Identifying an investment strategy
Your risk tolerance
The level of
risk
you’re willing to take is a key element in your investment
decisions, both inside and outside your 401(k). Past performance
shows that investments posing a greater risk to your
principal
offer potentially greater returns — along with a greater
probability of losses, at least in the short term.
If you’re not comfortable assuming any investment
risk, it’s best to recognize that fact — and its consequences
— early on. If you put most of your contributions in more
liquid
investments, you run up against inflation risk and the very real
possibility that your buying power won’t keep up with your
spending needs.
If retirement is many years away,
you can use the time you have to minimize risk and
still be in a position to reap the return that certain
volatile
investments can provide.
When you consider a stock or
stock mutual fund, ask yourself if you plan to keep
it in your portfolio for an extended period. The longer
you hold a volatile investment, the better the chance
it will be worth more when you’re ready to sell
it than you paid for it.
