Following on from Part I, let’s look at some of the other major risks when planning for retirement.
This risk is often confused with ‘market risk’, even though they are completely different.
Business risk refers to one particular investment, while market risk refers to the price of the overall asset class falling.
So what’s the best way to minimise the effects of both risks? Diversification (i.e. making sure that you don’t have all your eggs in one basket).
By investing across a range of different companies and sectors you can reduce the effect of any individual company going bankrupt and wiping out your retirement savings.
By investing in a range of different asset classes (e.g. shares, property, cash) you can minimise the effect of a down market in any one area.
Written by Dallas Davison.
Dallas Davison, Michael Hogue and Ali Hogue.