Safety Vs. Risk
To build your financial house – you need to measure safety vs risk. Risk is unavoidable in financial markets and you need to understand the inherent risks and weigh it against your age, goals, and resources.
The first step is having a strong foundation. This includes both liquid and non- liquid assets. Examples include checking and saving accounts, CD’s, fixed annuities, and fixed indexed annuities. All these accounts are considered safe and have truly little risk.
Once the foundation is settled, the next step is fortifying the house by building the walls. This includes marketable debt such as variable annuities, money market accounts, government, and municipal bonds. Marketable debt is considered risky.
Now that your financial house has a strong foundation and walls, the last step is securing the roof. Here we have equities, equity-based investments, exchange-traded funds, and derivatives. This includes corporate bonds, mutual funds, stocks, bonds, options, futures, and real estate.
Successful risk management is the key to any stock investment system.
Understanding the risks of each asset class is crucial in portfolio planning; but those risks can still vary per individual investor when questions of age, goals and investable income are considered.
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