People often see themselves as either “invested” or “not invested” in the markets, or consider their holdings as either “risky” or “not risky.”
But investment risk is not either/or. Investors may not always consider all the other risk levels in between. There are endless options between putting money under your mattress and betting it all on black.
The Risk of All or Nothing
We walk through this with clients all the time. When they reach for high-flying returns from aggressive stock investments, we talk about how the potential benefits may not outweigh the risk they’re taking on—and what that could mean for their future.
The same goes for avoiding risk altogether. The temptation to sell or move everything to conservative investments like money markets is still a risk. Selling underperforming assets during a market downturn can lock in losses and make it difficult to get back into the market to participate in the next upswing.
How Does the Fear of Loss Affect Your Choices?
Market volatility often leaves investors nervous about losing money, even though volatility can move account balances both up and down.
“Loss aversion” refers to the preference to avoid losses over an equivalent gain. People would rather not to lose $5 than to unexpectedly find $5. Or they’d feel worse about a sudden salary cut of 10% than they’d feel good about a surprise 10% raise.
Why? We don’t want to lose something we think we already have, and it changes how we think about investing. It’s important to understand how you might feel if the value of your accounts suddenly changes.
Example: An investor may be used to investing more aggressively but is nearing retirement.
We ask: If you stay aggressive and your returns are up 25%, how will that change your life? Extra purchases? New home? More vacations?
Typical answer: No, not really. I probably wouldn’t spend more.
Turns out, a 25% return isn’t usually enough to make people feel wealthier. They may have not been counting on that kind of performance, so it may not significantly change their retirement plans.
Then we ask a follow-up question: What if the value of your portfolio goes down 30%, 40% or 50% right before retirement? How will that change your life?
Answer: I would reevaluate my plans and my spending.
As the value of the portfolio went up over time, that amount became “their” retirement nest egg. Settling for anything less than that may be hard to stomach.
Be Risk-Appropriate for Where You Are
Your portfolio should change over time, as should your relationship with risk. But it’s never a black and white solution. You’ll need a mix of investments—some that have the potential to grow over time (e.g., stocks) and some that can help you preserve what you have (e.g., bonds and money markets).
If your current portfolio seems skewed to the extremes—mostly in conservative money markets or mostly in aggressive stocks—you might want to reevaluate your investment plan.
Your Portfolio = Your Future
Your allocation, or the portion you invest in each type, depends on you: your age, how close you are to retirement and how much money you’ve already saved.
Risk-Appropriate Considerations Now and For the Future
Hypothetical Allocations as Retirement Nears
Younger investors often start with smaller account balances. A stock-heavy portfolio might seem riskier, but theoretically, with lots of time to add to savings, market ups and downs have the potential to be absorbed before retirement.

Source: American Century Investments. The examples indicate hypothetical allocations. The circles assume increased contributions over time and are not meant to indicate gains based on market performance.
Your specific percentages of stocks, bonds and money market investments will vary depending on your own goals, time frame and risk tolerance, but this may give you a place to start as you evaluate your current and future investment plans.
As your salary increases, commit to investing as much as you can. Your regular contributions and the return potential of stocks are both important factors as you seek to grow your account balance. A smaller allocation to bonds may help hedge against market downturns.

Source: American Century Investments. The examples indicate hypothetical allocations. The circles assume increased contributions over time and are not meant to indicate gains based on market performance.
Your specific percentages of stocks, bonds and money market investments will vary depending on your own goals, time frame and risk tolerance, but this may give you a place to start as you evaluate your current and future investment plans.
Risk looks different if you’ve got more to lose, especially if you’re counting down to your last paycheck. After years of saving, you’ll want to preserve your money. Balance your growth potential with conservative investments that may offer a buffer in case of market volatility.

Source: American Century Investments. The examples indicate hypothetical allocations. The circles assume increased contributions over time and are not meant to indicate gains based on market performance.
Your specific percentages of stocks, bonds and money market investments will vary depending on your own goals, time frame and risk tolerance, but this may give you a place to start as you evaluate your current and future investment plans.
You’ll need to have a plan to make sure your money lasts. Calculating your expenses can help you determine a suitable withdrawal rate from your investments. Too little and you’ll have to adjust your lifestyle. Too much and you’ll deplete your accounts. (Learn more about retirement income strategies or talk to a financial consultant.)

Source: American Century Investments. The examples indicate hypothetical allocations. The circles assume increased contributions over time and are not meant to indicate gains based on market performance.
Your specific percentages of stocks, bonds and money market investments will vary depending on your own goals, time frame and risk tolerance, but this may give you a place to start as you evaluate your current and future investment plans.
Are You Ready to Face What’s Ahead?
Your confidence should be the core of your investment plan. If market volatility is rattling your resolve, it may be time to reevaluate your current situation. Together, we can create a plan that takes all your needs into consideration.
Author
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline.
Diversification does not assure a profit nor does it protect against loss of principal.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.