Should You Try Risky Investments to Grow Your Retirement Fund?

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At first glance, the answer to the title of this article will be a flat NO. No one should try using risky investments to grow retirement funds. But unfortunately, the term ‘investment’ makes the question a little bit tricky and the answer a little more complicated than a simple YES or NO.

Retirement funds are critical to maintaining the same standard of living when you are no longer working. With the general life expectancy now higher than it used to be, you might be looking at an average of 30 years (more or less) that you will need to depend on whatever you might have saved while working. Therefore, the importance of growing retirement funds cannot be overstated.

Your retirement funds will not grow without making some investments. Moreso, it is known that all investments come with some risks, only that some risks are higher than others. The intriguing part is; that high-risk investment means it is highly profitable, mainly in the short term if things go well. But, on the flip side, the fact that an investment comes with a low risk does not mean you won’t lose your money, and if you put a lot of money into a low-risk investment, you’ll also lose significant if you had to lose.

What is the Difference Between High Risk and Low-Risk Investment?

Investments considered high risk can potentially bring high returns over a short period, but the market is volatile for such investments. To a certain degree, they are also unpredictable. In other words, you are winning or losing big for such investments. However, you get to decide when an investment risk is too high for you in terms of how it will affect you if you lose. Some investments that are generally considered high risk are;

  • Cryptocurrency
  • Real Estate Investment
  • Venture capital funds
  • Initial Public Offering (IPO) investing
  • Angel Investing.

Meanwhile, investments that are seen as low-risk investments are those that offer a safe landing. The good part of a low-risk investment is that when you lose at all, you’ll lose small, but the returns are meager and are spread mainly over a while. They could be;

  • Government bonds
  • Savings or retirement contribution
  • Money market
  • Certificate of deposits

How to Decide When the Risk is Not Worth it?

A person can decide when an investment is too risky. This depends on how much funds you can lose without being hurt by the loss. However, if you keep losing little funds over a long period, it accumulates to a considerable loss. So ideally, you should have a cap on the amount of money that can be traded. This cap could save your retirement fund from going down the drain.

Furthermore, you can determine when an investment is too much of a risk by any of the following ways;

When your risk profile says the risk is not worth taking

Your risk profile includes your history of risk handling. It also includes your viability towards risk-taking based on your asset and liabilities ratio. For example, if your liabilities are more than your assets, a high-risk investment requiring a large amount is not for you. Also, a high-risk investment is not meant for you if you have a history of an inability to handle the loss.

If you cannot realistically recoup your losses before you retire

If you only have a few years before retirement, you need to ask yourself if you can realistically recoup your losses should your risky investments fail to pan out. If you are unsure, it’s better not to make risky investments.

If you cannot easily access your funds

If an investment freezes your funds over a long period, preventing you from accessing them whenever you need them, that is too much of a risk. In this case, you should know what you are getting into before going for the dive; that’s if you are convinced to dive.

The ball is in your court, and you have to decide what risk is not too risky to grow your retirement fund.

How Best to Grow Your Retirement Fund by Investing?

Investment is all about risk-taking; this is why taking calculated risk is so important when investing in growing your retirement fund. Whether it is a high-risk or low-risk investment, you might lose big if you don’t take a calculated risk. To know how much risk you can take, first calculate how much you are worth by deducting all your liabilities (debts and bills) from your assets (properties) and cash. What you have left after the deduction is how much you are worth. Then, you can decide how much you can afford to put away for retirement investment.

After knowing how much you can risk, you also need to grow this risk. To grow your retirement funds by investing in the best way you should;

  • Check out the total cost of investment

Consider the cost of the investment you are about to make. Some investments will rip you of your gains in the name of transaction fees or administrative costs. So when you have decided what type of investment you are making, ensure you check out all the costs involved in such an investment. So that you can calculate how much the real gain is, after all, deductions. This way, you can decide whether the investment is worth it.

  • Consider a compound interest Investment.

Compound interest keeps your funds on a perpetual increase. So if your funds were to grow at 10% annually and you invested $10,000. In 10 years, you can have about $25,000, which doubles your initial investment, and you don’t have to do anything apart from releasing the funds.

  • Resist being emotional

You cannot be emotional with your investment, whether losing or winning. Instead, it would be best if you were calculative, realistic, and objective whenever you are faced with investment decisions. When you are overconfident, you are vulnerable to losing big, and when you are skeptical for emotional reasons, it might prevent you from making huge gains. One possible way of checking your emotions is to diversify your investment as much as possible.

Conclusion

There is a saying that ‘not taking a risk is a risk itself.’ And since all investment is risky, if you had to grow your retirement fund by investing, that’s a risk. So what’s important is knowing what risk to take, how to take calculated risks, and how to be unemotional about making investment decisions.

P.S: If your retirement plans are dependent only on your savings, you might want to consider the fact that there is a rise in the cost of living and an increase in the average life expectancy. You need to grow your retirement fund, and one way to do so is by investing it wisely.

 

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