Risk Management and Your Retirement Savings Plan


A well-rounded approach to retirement planning will help ensure that you have money to last the rest of your life. But every investment involves risk. To manage your plan successfully, here are a few things to keep in mind:

1) Understanding risk
Risk is inherent with any investment — and it comes in many shapes and forms. Understanding these key risk types can help steer your plan in the right direction:


This is the risk that  investments can lose value due to factors like the economy, politics, and national events (from elections to natural disasters)


Stocks tend to carry some of the highest market risk.

2) Knowing your risk tolerance

How much risk can you handle? The answer varies for everyone based on things like how close you are to retiring, and more. To determine your risk tolerance, ask yourself:

  • How much do you need to accumulate for a comfortable retirement? The more you need to save, the more risk you may need to take on. 
  • How would you feel if your investments suddenly dropped by five, ten, or even 20 percent? Would you be inclined to sell and choose “safer” options? Or can you ride out temporary downturns in exchange for long-term returns? Might you see the downturn as a chance to buy even more?
  • How long will it be before you need the money? The longer you have to invest, the more risk you may be able to take on.
  • Have you saved up at least six months’ worth of living expenses in emergency savings? If so, you may be able to afford to invest and take more risk in your portfolio.

Talk to your financial advisor, or see the educational materials distributed by your investment provider for help in assessing your own risk tolerance.

3) Deciding how to allocate your assets
Once you understand your risk tolerance, you can make an educated decision about how to spread out your investments for a balanced approach. This decision — “asset allocation” — refers to how you divide your investment funds across different investment categories, like stocks, bonds, and more.

If you’re young and can tolerate higher risk, stocks may be a good choice for you. If you’re closer to retirement or have other concerns about risk, you may want to invest in more bonds or cash assets.

4) Diversifying
Whatever your risk tolerance, diversification is usually a good approach. When you contribute to a variety of investments, your portfolio can remain more balanced when some lose value and others gain or hold value.


When you invest in an employer-sponsored plan, your risk is managed automatically through “dollar cost averaging” (DCA). This means that by making contributions at regular intervals (usually at the time of your paycheck), you’ll be making some investments when prices are higher and some when prices are lower. Over time, your average cost is steadier or lower than if you made a large purchase all at one time — and that means better investment value in the long run.


Remember to check in regularly
About once a year, take a look at your investments, and reassess your risk tolerance based on any life changes. Some years, you may decide that all is well, and other years, you may want to shift money from one type of investment to another.


Don’t know where to start?

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