Playing it safe can be risky

What are the repercussions of being too conservative when investing?

Richard Rochester

Jason Bernic, Financial Planning Coach at Old Mutual Wealth, responds: It’s tough to decide which investment strategy to follow. The closer we get to retirement, the more stressful that decision becomes, because making the wrong decision can seriously affect our quality of life in retirement. As a result of this concern, our natural instinct before retirement is to put our money where it is considered safe. This often means a more conservative investment strategy, and, in many cases, it entails being heavily invested in cash. If the market falls during the year in which you retire, you should be safe. If it does not, you’ll still be able to sleep at night. So overall, it seems like a good idea, right?

Wrong. In fact, this is one of the greatest mistakes investors make. You need to give yourself the best possible chance to get as much as you can by retirement, with as much certainty as possible. The five years prior to retirement are particularly crucial to achieving this.

So how can you grow your money before you retire, and what can you expect? For the best possible growth, you should be exposed mainly to shares, because a responsibly managed, share-focused strategy can double your investment roughly every five years.

Although share market returns are not guaranteed, your chances of a positive return increase over longer terms. By investing in a responsibly managed and diversified share portfolio, your chances of getting a high positive return become better yet. Also remember that your investment term does not stop when you retire. It stops when you stop – which could be more than 25 years later.

So is it worth taking the plunge into a share portfolio? Ask yourself whether you can afford not to. The more time you have available and the more disciplined you are about not switching in and out of investments, the lower your risk and the better your retirement lifestyle could be. Remember that an expert financial planner can play a vital role in this regard. Don’t be afraid to pay a fee to obtain sound advice – it may well turn out to be the most valuable thing you’ve ever bought.