Grow your Money – The Risk and Reward Tradeoff

Monument Financial Group : Understanding the Risk-Return Tradeoff

There are so many options to ‘GROW’ your money in today’s world, it can become over whelming. One approach to simplify the confusion is to think in terms of the RISKS and REWARDS associated with the various options.

In today’s world, there are thousands of options to grow money for future retirement plans and long-term objectives. At one end of the spectrum are those investments that have lower risk but also lower return on investment (growth). These “low risk/low return” options include FDIC insured savings accounts, Certificates of Deposits and money market funds. The money invested is relatively safe but will only earn between zero and 1% per year in the current (very low) interest rate environment.

On the other end of the spectrum are investments with higher returns, but also much higher risk. In other words, in a given time period, they have a high probability of losing value. These types of investments include equity (individual stocks, mutual funds, ETFs, etc…) investments that have the potential for larger gains than a savings account but also significantly more higher risk.

This chart, courtesy of macrotrends, demonstrates the ups and downs of the S&P 500 stock market index over a 30-year period. This index is one way to represent 500 of the largest stocks available to buy, hold and sell. It demonstrates the positive and negative gains associated with higher risk equity investments during various time periods.

Monument Financial Group – S&P 500 30-Year Historical Performance

It is important for anyone ‘SAVING’ for their future to consider their personal ‘appetite’ for risk along with their desired return. All too often, investors panic and change direction when they see the impact of a high risk, high return options when the stocks they own drop quickly and without warning. For example, in just over a month between February 19, 2020 and March 23, 2020, the S&P 500 lost one-third (33%) of its value. It has regained that and more since then but many people panicked when they saw their investment drop in value so quickly. This, by the way, is a common typical human response and one of the main reasons investors should consider all of their options.

One alternative that can help minimize the losses, while benefiting from some of the gain is called an INDEXED ACCOUNT. An indexed account, combined with a long-term commitment, acst like a shock absorber for the market’s road bumps while still providing higher returns than the safe options like savings accounts, CDs and money-markets.

Learn more about how INDEXED ACCOUNTS can help you grow your money with RISK-RETURN balance in our free ‘Money 101’ webinar presented by Five Rings Financial.

It’s a great first step in learning how to save, grow and protect your money for your financial future.

Money 101 Workshop on January 14 @ 11:30 am Mountain