Many of us know people who needed to continue working into retirement in the wake of the 2008 financial crisis. There are benefits and risks to having a diversified investment portfolio, but it would be helpful to know what’s too risky—and what’s too safe. 

In order to better understand what makes a portfolio safe in the first place is to understand what kinds of risks exist. There are risks across the board, but some kinds of investments carry much more. 

There are short term and long term risks, but the argument is that long term risks loom the largest. This is because the ultimate goal is to be able to draw on your retirement accounts in your retirement and expect that they actually cover your living expenses. Some investments, like cash and bonds, will not grow very much, and are likely not to hedge against inflation. 

For your retirement portfolio to really serve you, you should also consider what other income sources you have (or will have). For example, your Social Security or pensions will only hedge against inflation but so much. You need the rest of your portfolio to do that work for you and ensure a comfortable retirement by taking on risks that will leverage the most growth over time—all while keeping some conservative investments!

Too safe means it is not going to be able to keep up with your standard of living in the future. The biggest risk is often not the short term ups and downs but rather that inflation will increase too much, hurting our ability to keep up with expenses down the road.

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