Figuring out what you’d like to do and how you’ll finance it once you stop working is a vitally important part of retirement planning. It involves developing and implementing a savings and investment strategy early in life which will enable you to achieve your financial goals later in life.

Over time, this initial strategy could change depending on your tolerance for risk. When younger, that risk tolerance may be higher than when you approach retirement. The key thing is that whatever strategy you do adopt, you must be comfortable with it – you don’t want to be worrying or anxious about your finances.

If your current strategy is weighing heavily on your mind, it might be time to re-assess the investment products you’ve chosen, as well as your tolerance for investment risk.

Which Investment Products Have Less Risk?

There are many different types of investment products that are considered less risky than others – Guaranteed Investment Certificates (GICs) or Term Deposits, Corporate Bonds, High-interest Savings Accounts, Money Market Funds, Annuities and dividend paying stocks are some of your options. They are less likely to lose significant value if the markets suffer a downturn. They offer slow and steady growth.

Which Investment Products Have More Risk?

Investing, for example, in Stocks or Mutual Funds (especially those that have a strong equity component), may expose you to more market volatility and risk. Other high-risk investments include Hedge Funds, Crypto Assets, Venture Capital, Inverse & Leveraged ETFs and foreign currency. However, on the other side of the coin, they have more potential for greater financial returns in your portfolio if the markets perform well.

How Do You Find out What Your Risk Tolerance Is?

Two factors, amongst others, are key to help you determine what risks you wish to take on when it comes to your financial strategy and retirement planning. Your timing and your comfort level.

  1. When would you like to retire? If you’re 45 years old, and plan to work as long as you can, you may be able to take on more investment risk than someone who’s 55 and hopes to retire in the next five to ten years. The reason being that, should your investments lose money (value) due to market volatility, you have more time to recover your losses the younger you are. This is why planning for retirement should begin sooner than later.
  2. How comfortable are you with market fluctuations? Would you be anxious if, when examining your investment statement, the value of your holdings was lower than it was six months previous? Would you panic? Or would you take it in stride, believing the markets will improve? Perhaps you’d find yourself somewhere in between the two, knowing that ups and downs are all part of the process?

It’s important to know not only when you wish to retire but also to be honest with yourself about your comfort level when it comes to market fluctuations/volatility. They both play a part in helping you understand your risk tolerance.

Having an open conversation with your wealth advisor can do wonders in helping you to develop a feasible and comfortable financial plan. Your advisor has access to tools and resources which can enable you to discover more about the kind of investor you presently are.

Needless to say, your needs and tolerances to market fluctuations will, quite possibly, change throughout your lifetime so plan to review your investments and strategy on a regular basis with your advisor.

Once you’ve determined your investment risk tolerance, there are different products available to match your preferred investment style – be it high risk tolerance or low risk tolerance – that can help you to properly plan for your retirement. For example:

More Tolerance for Risk

If you feel you can look at market volatility as a part of investing and can embrace the ups and downs, then you’ll want to consider products that can help you take advantage of the markets and potentially rising rates of return.

Less Tolerance for Risk

If you answered that fluctuations in the value of your portfolio make you anxious or panicky, you’ll want to look at those products listed above that are considered low risk.

It’s Your Future

The definition of today’s retirement isn’t the same as it once was. Not everyone wants to stop working completely at 65 anymore. Some people may want, or need, to delay their retirement for all kinds of reasons, the least of which may be financial. They may want to continue working full- or part time after they turn 65 years old.

It’s up to you to plan ahead for any and all scenarios. No matter what your age, knowing your risk tolerance is one of many ways to ensure you properly finance your future.

Why not speak to a financial advisor at one of our Credit Union partners if you haven’t already got one, and discover where you see yourself? Here are some helpful links.