If you’re like most people, you know that investing is a trade-off between risk and return. Some lower risk investments may guarantee your money, but often provide lower returns. On the other hand, many investments that offer higher returns can come with a greater level of risk. The trade-off is finding the right balance for you.
As you know investing in bonds and GIC’s offer very little interest and the perception is that there is too much uncertainty and risk investing in stocks. So what can an investor do to grow their retirement nest egg safely?
They do the most logical thing.
With home values up significantly in the past decade and interest rates at historical lows, many homeowners have been taking advantage of a sure thing. They have been borrowing against the increased equity they have built up in their homes at today’s historical low interest rates to invest in real estate or lend money to their children to fund their down payment to purchase their own real estate.
This way, they figure, they can grow their retirement nest egg, help their children and retire someday. The problem is that real estate just like any investment has its up’s and downs. The best time to buy an investment (real estate included) is when it is down (when everyone wants to sell) and the best time to sell an investment is when it is at a historical high (when everyone wants to buy more)! Get it wrong and the end result is that investors often lose a big portion of their nest egg by buying when investments are expensive, only to sell the same investment when they are cheap.
The truth is; storm clouds are brewing. The media is full of stories that real estate values are at historical highs and may normalize sometime in the near future. They are also predicting that interest rates may be going up soon making it more expensive to borrow to buy more real estate or to afford the payments on the real estate investments they already own.
The experts could be wrong and real estate will continue to go higher, but what if they are right? Do you want to take a chance and risk your hard earned nest egg? Besides is it wise to put all your eggs into one investment basket?
So that’s the problem, but is there a solution? Absolutely! It’s called managed portfolios. That’s a technical-sounding name for a simple idea: a portfolio of investments selected by a team of professional investment managers designed to help you both grow your wealth while minimizing your investment risk.
No single investment is right for every point in time. To reduce risk and ensure growth the investment management team and the investment managers they oversee will carefully construct a portfolio to help smooth out the market’s ups and downs.
The key is diversification. By combining different styles of investments, different asset classes and exposure to various geographic regions, a professionally managed portfolio can be positioned to grow to its potential with reduced risk.
Of course, this type of investment isn’t right for everyone…but it may be right for you.
– By Adrian C. Spitters, FCSI®, CFP®, FMA