- Introduction
- Your Retirement Investment Goals
- Risk Tolerance
- Investment Return
- Understand Risk
- Basic Strategies
- Investments
- Asset Allocation
- Managing Your Investments
- How Is Investing for Retirement Different from Other Investing?
- Steps to Follow when Investing in Funds in a 401(k) Plan
There are several kinds of risk. The two that we will discuss here and that you need to consider are market risk and inflation risk.
Market Risk
Cash-type accounts (bank accounts and money market funds*) are designed to provide safety of principal. You put a dollar in—you get a dollar back with some interest. The value of your account increases because your principal earns interest and your interest earns interest.
Bonds, or notes (less than ten years to maturity), are designed to pay you a fixed rate of interest over the life of the bond. They typically pay a higher return than cash accounts. When the bond comes due (matures), you get your principal back in full (assuming it doesn't default). However, prior to maturity the value of the bond can go up or down depending primarily on the direction of interest rates.
Common stocks offer the potential for even a higher rate of return; but the value of your investment is subject to even greater volatility over the short-term. The stock's volatility is subject to market conditions and the financial well-being of the company you've invested in.
To sum up, market risk is the measure of how much the value of your investment can vary.
History shows us that investing in common stocks means that risk in the short term is greater than risk in the long term. It suggests to those who need their money soon not to invest in stocks.
Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although they seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
IMPORTANT NOTE: Stock investing involves risk, including possible loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will likely decline as interest rates rise and bonds are subject to availability and change in price.
Inflation Risk
Previously, we talked about inflation. It is your enemy, and it reduces your purchasing power. Your goal should be to increase your purchasing power—and we recommend that you do this by investing to beat inflation by at least 3%.
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Franklin Mint Federal Credit Union and Mint Wealth Advisors are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Mint Wealth Advisors, and may also be employees of Franklin Mint Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Franklin Mint Federal Credit Union or Mint Wealth Advisors. Securities and insurance offered through LPL or its affiliates are:
| Not Insured by NCUA or Any Other Government Agency | Not Credit Union Guaranteed | Not Credit Union Deposits or Obligations | May Lose Value |
*The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: NJ, PA, NY, DE, AZ, MI, FL, MD, TX, VA, GA, NC.
Financial Learning Center content created by TrueBridge, Inc. The information provided is based upon sources and data believed to be accurate and reliable. The content contained herein is intended for information and illustrative purposes only, should not in any way be construed as a personal recommendation, and should be used in conjunction with individual professional advice.
