For years—across every generation—Americans have generally played it safe with their money, avoiding risk whenever possible. But as the old saying goes, “no risk, no reward.” In reality, smart, well-calculated investment risk is often a key driver of long-term financial success, even in retirement.

Attitudes Toward Risk

According to research from FINRA, Most Americans grasp basic investment risk—around 80% can identify the riskiest option in a comparison. But fewer (just 55%) recognize diversification as a risk-management strategy. Understanding improves significantly among those with investing experience, higher income, or a college degree.

Risk tolerance generally tracks with understanding: 46% are comfortable with average risk, while 24% are open to above-average or high risk. Top concerns include losing money, inflation, and liquidity—though non-investors are especially risk-averse due to fears of loss and needing quick access to cash.

Avoiding Risk — Isn’t That a Good Thing?

It might seem smart to avoid risk, especially with your money. But when it comes to investing, playing it too safe can actually be the riskiest move of all.

One of the biggest pitfalls in financial planning isn’t market volatility — it’s avoiding risk altogether.

“Let’s talk about a huge risk: the risk of avoiding risk,” says Leon LaBrecque, a certified financial planner with LJPR in Troy, Michigan. “All too often I see clients sitting in cash, paralyzed by the fear of the next big downturn.”

While your investment strategy should reflect your goals and timeline, most financial planners agree: taking some level of risk is essential to keeping your retirement portfolio growing, even during uncertain times.

Keeping Investment Risk in Perspective: 10 Tips for Smarter Investing

Investing always involves some level of risk, but that risk can feel overwhelming when markets are volatile or headlines are alarming. These 10 tips can help you stay grounded and make thoughtful decisions about how much risk to take in your investment portfolio.

1. Don’t Try to Time the Market

As of July 2025, the market appears to be bouncing back from a sharp downturn earlier this year. But new headlines—like rising tariffs—remind us just how unpredictable markets can be.

No one can reliably predict what the market will do next. That’s why it’s smarter to focus on what you can control: your goals, your timeline, and your plan for staying invested through ups and downs. Creating an Investment Policy Statement (IPS) can help you clarify your strategy and stick to it, even when the market gets bumpy.

And if another downturn hits, here are 10 surprising moves to make.

2. Remember: No Risk, No Return

No risk, no return, that’s the mantra of the financial planner, says Rick Kagawa, Certified Financial Planner® professional and president of Huntington Beach, California-based Capital Resources and Insurance, Inc.

“Having no risk in your investments equals no returns,” he says. “If you have no returns, then you must generate all the money for whatever your goal is. This makes reaching your goal much more difficult to nearly impossible.”

The most common no-risk account is a bank account, he adds, noting that there has never been a time when you could make money in this savings vehicle. “The fact is, your money shrinks with inflation and taxes in a bank account,” he says.

You may be thinking a bank account is still safer than investing in stocks, which could plummet again and devastate your investments. But you’re wrong, for the most part.

3. Yes, Markets Have Gone Down, But They Have Always Recovered

Short-term market drops are normal. What matters is the long view: historically, markets have always rebounded and continued to grow over time. Even severe downturns—like the 2008 financial crisis or the early 2020 pandemic crash—eventually gave way to strong recoveries.

A one- or two-year contraction can feel painful, but it doesn’t define your long-term success. And if we ever face a true market doomsday scenario where investments never recover, money probably won’t matter much anyway—we’ll have far bigger concerns than portfolio returns.

4. You Need Some Risk to Stay Ahead of (Or Keep Pace With) Inflation

While you’re working, your income often rises with inflation. But in retirement, you’re more likely to rely on savings—and if those savings aren’t growing, inflation quietly erodes your purchasing power.

Investing too conservatively can actually be risky in the long run. To maintain (or grow) your standard of living, your investments need to earn returns that at least keep pace with inflation. That typically requires taking on some level of market risk.

Avoiding all risk might feel safe, but over time, it can mean falling behind.

Learn more about inflation risks.

5. Don’t Be Ruled By Fear

Fear is a powerful emotion—but a poor investment strategy. Making choices based on panic or worst-case scenarios often leads to missed opportunities and long-term regret.

“A huge risk is fear itself,” says advisor LaBrecque. “History tells us that it’s fear—not market downturns—that does the most damage.”

Stay focused on your goals, not the headlines. A solid plan will help you ride out the storms.

6. Taking Calculated and Balanced Risks is Key

Investing isn’t about going all in on stocks and hoping for the best. It’s about taking calculated risks—ones that are intentional, informed, and aligned with your timeline and goals.

In the Northwestern Mutual Planning & Progress Study, 21% of respondents said they actively take calculated risks in pursuit of higher returns. The key is balance. As CFP® Scot Hanson explains, your investment choices should match when you’ll need the money.

“For long-term goals, consider higher-risk, higher-reward options like mutual funds—especially in a Roth IRA,” says Hanson. “But for short-term needs, avoid unnecessary risk. Use cash, CDs, or short-term government bonds. You won’t earn much, but you’ll protect your principal.”

In short: risk isn’t something to avoid—it’s something to manage wisely.

7. Consider a Bucket Strategy

A simple bucket strategy divides your savings into different “buckets” based on when you’ll need the money. The idea is to take more risks with long-term investments while keeping short-term funds in safer, more stable accounts.

For example, you might keep one bucket in cash or CDs for expenses over the next couple of years, another in bonds for mid-term needs, and a third in stocks for long-term growth. This approach helps you manage risk while giving your money room to grow.

Learn more about bucket strategies.

8. When Not Taking Risks Makes Financial Sense

As a general rule, start reducing market risk at around age 55, depending on when you will retire. Do this by using managed accounts in which the goal is to avoid high draw-down, says Michael Black, certified financial planner and owner of Scottsdale, Arizona-based Michael Phillips Black Wealth Management. .

“Once you go into distribution mode, avoiding large market moves is critically important,” he says. “When you’re retired, the avoidance of draw-down is more important than achieving appropriate returns.”

It’s not surprising then that baby boomers (age 51 to 69) are considerably more risk-averse than Generation X (age 34 to 54) and millennials (age 18 to 34).

In fact, 83% of baby boomers are more comfortable reducing risk to ensure the safety and stability of their savings, even if it means lower potential for returns, the Northwestern Mutual study finds.

In comparison, 74% of Gen Xers and 71% of millennials feel the same.

9. Work with a Financial Advisor

The Northwestern Mutual study found that American adults who worked with an advisor reported an average risk tolerance of 5.2 on a scale of 1 to 10, while those without advisors had an average risk tolerance of just 4.6.

Trust the experts. They can help you adopt a sane attitude toward risk.

• Boldin can match you to a financial planning professional. Collaborate with a CERTIFIED FINANCIAL PLANNER® professional from Boldin Advisors to identify and achieve your investing goals. Book a free discovery session.

10. Understand the Power of Diversification

Different types of investments serve different purposes. Stocks, for example, are typically used to grow wealth over the long term, while something like a lifetime annuity is designed to provide steady, guaranteed income—not big returns.

Diversification means spreading your money across a mix of asset types—like stocks, bonds, cash, and income-producing products—so that each piece plays a role in meeting your personal goals. It’s not just about reducing risk; it’s about building a strategy that supports your needs now and in the future.

Financial Planning Risk Conclusion

Playing it “too safe” can quietly wreck a plan. Cash drag, inflation, and longevity risk eat future purchasing power while you sit on the sidelines. Build a risk you can live with: match risk capacity (time horizon, income stability) and risk tolerance (sleep-at-night factor), diversify across stocks/bonds/cash, and rebalance on a schedule. Use safer assets for near-term needs, growth assets for long-term goals, and guardrails (cash buckets, dynamic withdrawals) to handle shocks. Don’t avoid risk—price it, size it, and manage it.

Financial Planning Risk FAQs

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Updated October 3, 2025