We live in a risky world. Economies do well, and economies do badly. The stock market goes up and then swings back down. There is no certainty in our money, and any investment is always subject to lose value. How are we to protect our family and future in such a risky environment that we call life?

Why we cannot afford not to invest:

Inflation is the reason that putting our money under our mattress doesn’t make any sense.  Dictionary.com defines inflation as “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).” Its just a fact of life, if the economy is growing, inflation comes along with it. Although the US (and a lot of the world) economy has slowed down, we are still looking at 1-2% annual inflation. This means that what used to cost you $1 now costs you $1.02. Just like that. By leaving your money just sitting under your mattress, you are in fact losing money because it is not as valuable as it was previously. In order to stay ahead and not lose money, individuals must invest, and therefore face risk.

How you view risk is affected by your political outlook:

There are some people out there who are convinced that the collapse of both our economy and government is imminent. While the majority of people might not fall into this category, you might. People like this probably aren’t going to be investing their money, they should be stocking up on the goods that will help them survive. Other people do not believe this, and will find that they should in fact invest their money to help ensure a good future for themselves. My belief has always been that if in fact the collapse happens, we’ll have much bigger worries on our hands than whether or not we stocked up on canned goods last month. Unless you believe the collapse is imminent, you must invest your money to stay ahead.

Balance and diversity is key:

First of all, if its too good to be true, it probably is. The best way to deal with risk is to minimize how exposed you are to it. Putting all of your retirement into one stock, probably isn’t the best idea. What happens if it goes down? You’d lose everything. Try to choose a good balance of various stocks that are in various industries. Try also to invest in different types of investments. Stocks, bonds, CDs, real estate and even savings accounts are all a smart part of a “balanced portfolio”.

Knowing yourself to choose the right amount of risk:

Some people are risk averse (dislike risk and try to avoid it), while other people are more comfortable with taking on risk. The typical statement goes like this “more risk, more reward; less risk, less reward.” Some people can afford to take more risk while some of us have responsibilities that come first. Taking on more risk would involve investing in more stocks and bonds, while investing with less risk would involve mutual funds or CDs.

Risk is a fact of life. Taking on more risk than you can afford is gambling. Being too conservative with your money is wasteful. Learn about your own style and make smart decisions with your money. It’s your money, put it to work for you.