Recognizing the uncertainties associated with your investment portfolio is crucial to properly protecting your financial wellbeing. This is especially true for those of you in or near retirement, because you simply don’t have the time to rebuild your shattered finances, which you intend to see you through the harvest of life, when you reap the rewards from a lifetime of hard work.
It is vital to have a firm awareness of how much danger your assets are exposed to, which means it is your duty to know the true risk associated with every vehicle you are invested in. Failing to understand how much risk you are exposed to could have catastrophic consequences for your retirement, forcing you to spend more time growing your crops before you can enjoy the harvest.
One common misconception that can spell doom for hopeful investors is the belief that the word “bond” is a synonym for “investment safety.” The truth of the matter is that bonds, by their very definition, are the opposite of safe, they are a risk class investment.
Bonds, like all securities such as stocks and mutual funds, are very volatile investments which can rob you of your life’s work overnight. Just ask anyone who was invested in General Motors bonds when the company filed for bankruptcy in 2009. These people were deceived by the reputation of bonds, which they thought would protect their assets from harm.
Municipal bonds have also proven to be notoriously unreliable, as cities like Detroit, MI, Harrisburg, PA, Stockton, CA and others have declared bankruptcy, delaying bond payments indefinitely.
Even Treasury bonds, which are touted by most financial advisors as a keystone of stability, have the potential to impoverish retirees who had too much faith in their “safety.”
In fact many experts are suggesting that due to the masses of investors fleeing to the false sense of safety in bonds following the financial crisis of 2008, the bond market is now in a bubble and could be set to burst soon. Ironically, because of this unwarranted belief in the safety of bonds, those who are invested in the bond market will learn the truth about risk class investments when the bubble bursts.
If you, like many other investors, were under the impression that the bond market was a safe place for your retirement savings, you should consider re-evaluating the risks associated with securities investments.
Like many of our Crash Proof Principles, this week’s principle comes down to education. The best shield against the many threats to one’s nest egg is proper education on retirement finances. So get educated on the true risks associated with your retirement portfolio and the safe investment alternatives outside of the securities industry that guarantee a fruitful harvest in retirement.