Taking On Too Much Risk
It’s one thing to be young, in your prime earning years, and wanting to dabble in the stock market. So you invest in a stock a co-worker may have told you about that tripled in price, and is expected to go even higher. No harm, no foul as long as you can afford to lose that amount you invest. And, if the stock does triple in price again, your office pal is a hero.
However, if you are 15-20 years from retirement, risk is something you need to seriously consider. All too often we have our eye on the prize (what we can gain) instead of the risk (what we can lose), and that’s when costly mistakes can happen.
When investors experience losses in their portfolios—think the financial crisis in 2008-2009 and technology bubble in 2000—they often panic and look for ways to make up for lost principal and time. They invest in stocks with tremendous growth potential, and ignore the tremendous risk that goes along. That’s a perfect strategy if you want to work the rest of your life!