We all know that you can barely get any interest, or return, on your savings account. The Fed is keeping the interest rate very low, which translates into low returns on savings and safe assets like money markets and government bonds. With so little return in the traditional fixed-income side of your portfolio, does that fundamentally change the way you should consider risk?

It used to be that you could get 4-5% interest on fairly safe investments like your savings account and money market accounts. Therefore, to invest in more risky assets like an individual stock or the entire stock market, you would expect to get more than 5%. Seeking risk wasn’t the safe thing to do, avoiding it was. But now we’re in the opposite regime: you have to actively seek out risky investments in order to get a decent return.

It’s important to understand the associated risks of your investments. Make sure that you know what the range of future outcomes could be, and how that might affect your ability to reach your goals. Be confident with a plan on how you will proceed in any given market event.

Resources:

• What You’ve Lost in This Bull Market