This risk should be considered when making investment decisions.
After all, why is money important to us? Because we use it to purchase the goods and services that make up our lifestyle. If our money is growing slower than the prices of these goods and services, should that not be considered a real loss?
While inflation has been relatively tame in recent years, with longer life expectancies, its risk looms larger than ever.
For others, paralyzing risk aversion can come from the lingering sting of past investment losses. These are people who used to be invested in the markets and, when their accounts suffered a downturn, sold to stop their losses.
The stock market has been full of ups and downs in the last dozen years. This volatility can be difficult to take. I often hear comments like, "I sold out in 2008 before I lost everything."
However, in a properly diversified portfolio, the prospect of losing everything is almost statistically impossible. Properly diversified portfolios own hundreds of stock and bond positions that don't move in tandem with one another.
If you have an adequate emergency fund and are properly diversified, sticking it out over the long term can help improve your chances of success. History shows that over long periods of time, a properly diversified portfolio successfully grows investments faster than the inflation rate.
The markets are now near record highs. If you held your ground in 2008, you should be fully recovered and more.
The bottom line: All investments, even the "safest," have risks.
It is essential to understand what the real risks are in your investment strategy to be successful in the long run.
Disclaimer: Securities and advisory services offered through National Planning Corporation (NPC), member FINRA/SIPC, a Registered Investment Adviser. Fourth Avenue Financial and NPC are separate and unrelated companies.