Grab that $384,000

There is a simple mistake that can cost you $384,000 but is easy to avoid.

That mistake is not being aggressive enough with your investment savings.

While I often preach about being conservative and not being too greedy, there are many people that go too far in the opposite direction. A certain level of risk and aggressiveness in your investment portfolio is required to reach its full growth potential.

The stock market is no doubt volatile; the S&P 500 saw over 30 downturns of -10% or more in the past 50 years. But here’s the thing – it ultimately recovered from each and every one of them.

If you simply can’t weather the downturns and you will pull your money out during each one, then the stock market may not be for you. But if you can truly take a long-term investment view and stick to your plan, there is an awful lot of upside potential.

Let’s take a closer look. Assuming a $500/month contribution over the 30 years of your working career, how much can you expect to accumulate:

• A conservative portfolio comprising of mostly fixed income would grow to $349,970 (four per cent per year).
• A moderate portfolio with a mixture of stocks and bonds would reach $502,810 (six per cent per year).
• A more aggressive portfolio invested entirely in stocks would grow to $734,075 (eight per cent per year).

If you limit yourself to that more conservative portfolio and achieve the four per cent per year average growth rate, you would be missing out on $384,105 of extra assets to use in your retirement.

Your retirement will likely cost a lot more than you think so that extra cash will be much appreciated!

The key distinction here is that I’m talking about being more aggressive, not downright greedy or foolish. The reason so many investors achieve low returns or even lose much of what they put in is that they attempt to earn even higher returns, expecting north of 10% each year.

They put money is real estate investments/scams, risky resource plays and long shot startups that have a slight chance of hitting it big.

By suggesting some of you be more aggressive, I’m not suggesting you “roll the dice” on a long shot, but instead talking about reducing your fixed income allocations a little bit and being more fully invested in a well-diversified and stable portfolio with an appropriate amount of equities.

It is easy to adopt a conservative investment strategy and resign yourself to limited growth in your investments, but that move could really end up hurting you in the long run – to the tune of $384,105.

While investing in the stock market may seem too risky for you, consider the risk of not having enough money to fund your retirement and how you will make ends meet?

Of course, each situation is different and you should work with a qualified advisor to determine what level of aggressiveness is right for you.     

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.