Personal Wealth Management / Retirement

Misunderstanding the Risk-Reward Trade-off | Fisher Investments Common Investing Mistake #3

Retirement is supposed to be an exciting time. Finally, you have the time to travel and pursue the hobbies that you were unable to during your working years. Unfortunately, many spend much of their retirement worried about their finances. At Fisher Investments, we’ve helped thousands of individuals and families plan their financial futures so they can enjoy a comfortable retirement.




Title Screen appears, “Common retirement Investment Mistakes”

Sub title below, “Mistake #3: Misunderstanding the Risk-Reward Trade-Off"

- Fisher Investments


Women with navy blue suit appears standing next to a screen with a title “Mistake #3: Misunderstanding the Risk-Reward Trade-Off"

Jessica Smith Starts speaking.

Jessica Smith: Many retirees believe that they need to take a cautious, low volatility approach to investing. they may want to create predictable income streams or to protect their principal and their peace of mind. Some stable, low returning investments may be right to include in your portfolio, depending on your investing goals and personal situation.

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Jessica Smith keeps speaking

Jessica Smith: But if you need long term portfolio growth to reach your investing goals, investing too cautiously could increase the risk you run out of money in retirement or fall short of other investing goals. Trading the stress of the stock market for the lower but more predictable returns of bonds may seem like an acceptable tradeoff. But even seemingly small differences in your average annual returns become very significant over time.

Screen Shows a chart titled “Long-Term Growth of $500,000“, that explains the different between investing in bonds and Stocks.

Jessica Smith: Say you have a $500,000 portfolio. For simplicity, let's assume that if you invested it in bonds, your average annual return would-be 5%, while if you invested in stocks, your average annual return would be 9%. These two rates of return would lead to dramatically different investing results over 10, 20 or 30 years. Often, investors focus on one risk

Screen shows synonym of Volatility

Screen shows below Synonym of Myopic Loss Aversion

Jessica Smith: The risk of volatility, while ignoring other investment risks. It's common to focus on what is right in front of us, and we tend to feel the pain of losses very sharply. Myopic loss Aversion an important insight of behavioral finance explains the common tendency for investors to focus on short term losses. Because we tend to feel much more pain from losses than we take pleasure in gains.

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Jessica Smith continues to speak

Jessica Smith: This can store to go to great lengths to avoid losses, even if it means giving up future gains. Investing carries an inherent risk return Tradeoff to earn higher long-term returns, you may have to endure market volatility and accept more short-term risk. However, whether this is appropriate for you depends on your personal situation, goals, and other factors.

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Jessica Smith: Thanks for watching. You can check out our other six common retirement investing mistakes to learn more about what to avoid as you plan for your financial future. If you enjoyed this video, you can click the subscribe button and ring the bell to be notified when we publish new content. Thanks for watching our channel.

A series of disclosures appears on the screen “Investing in Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of Fisher Investments or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.”


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