If you do not have enough money to retire, what should you do? Should you consider investing in riskier investments to compensate for not having saved enough?
During the final races at horse tracks, gamblers tend to bet on long shots. In Las Vegas, there is a pronounced tendency for people to place long-shot bets near the end of the day. Gamblers who lose money during the day desire to go home as winners.
Less wealth is generally thought to prompt people to take less risk in their investment portfolio. However, behavioral research indicates that some investors seek more risk when they believe they are behind.
I have seen this when preparing retirement analyses for people who have inadequate retirement savings. Some want to compensate for insufficient savings and investments by investing in riskier investments. People are tempted to fall prey to investments that sound too good to be true. Investment pitches that provide “great upside opportunity with guaranteed protection” are made all the time. How dangerous!
Remember, if something sounds too good to be true, it’s just that—too good to be true. There is no shortcut to prudent investing. There are three steps that can contribute to a successful investment experience:
- Start depositing something out of every paycheck into your retirement plan as early in your career as possible.
- Employ broad diversification using a risk-appropriate portfolio of stock and bond index funds.
- Maintain a long-term position in this diversified portfolio of transparent, low-cost investments.
Don’t gamble with your retirement!
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.