Avoiding Investment Risk? You're Doing It All Wrong – Playing It Safe Could Be Your Biggest Retirement Mistake!

Imagine if I told you that playing it safe with your money would really endanger your retirement.

Do you want your future self to congratulate you for your financial decisions, or do you want to look back with regret, wishing you had done things differently? Before you ignore this as careless advise. I was there. Looking back ten years and recognizing that, had only I taken measured chances, I would have been far closer to my objectives now. I have regret.

Let me explain why avoiding risk is costing you more than you would believe and why taking measured chances can be the best choice you will ever make for your retirement.

What if I told you that playing it safe with your money would compromise your retirement?

Do you want your future self to thank you for your financial decisions, or do you want to look back with regret, wishing you could have done things differently? Before you dismiss this as careless advise. I was there. Looking back ten years and recognizing that, had only I taken measured chances, I would have been far closer to my objectives now. I have regret.

Let me explain why avoiding risk is costing you more than you would believe and why accepting measured risks can be the best choice you will ever make for your retirement.

The Power of Compound Interest – Even in Risky Investments

Let's begin with a basic fact: Compound interest is such a powerful tool for building wealth.People often refer to it as the eighth wonder of the world due to its rapid growth. But here’s the thing: compound interest really shines when it's combined with investments that can offer higher returns. So, you won't believe this! Investments usually carry a certain amount of risk.

If you just put your money in low-risk, low-return options such as savings accounts, fixed deposits, or government bonds, it will grow, but really slowly. In Indonesia, most fixed deposit accounts provide returns of around 3-4% each year, which hardly keeps pace with inflation.

• Look at how that stacks up against riskier options like stocks, mutual funds, or ETFs. These have usually given much better returns over a long period. For example: The Jakarta Composite Index (IHSG) has demonstrated an average annual return of 10-12% in the past ten years.
• In Indonesia, mutual funds that focus on a variety of stocks typically provide an annual return of around 8-10%.

When you put these returns together with the power of compounding, the outcomes can be really significant.

Why Playing It Safe Can Be Dangerous

Let’s break this down with an example: Imagine you invest Rp 100,000,000 at age 30 and let it grow until you retire at age 60:

1. Low-Risk Investment (3% Annual Return): Your Rp 100,000,000 grows to Rp 242,726,000 after 30 years.
2. Moderate-Risk Investment (6% Annual Return): That same Rp 100,000,000 grows to Rp 574,349,000.
3. Higher-Risk Investment (8% Annual Return): Your Rp 100,000,000 becomes a whopping Rp 1,006,266,000.

Now, ask yourself: Are you willing to miss out on an extra Rp 760,000,000 by avoiding risk?

Yes, risky investments might fluctuate in the short term. But over decades, the ups and downs smooth out, and the overall trend is upward. The lesson I got from my financial journey is a financial goal, a long-term mindset, patience and consistent.

Including Paper Assets: Why Insurance Is a Must-Have

Investing in higher-risk assets doesn’t mean ignoring the importance of protection. This is where paper assets like insurance come into play.

Why You Need Insurance

1. Safeguard Your Wealth: Insurance helps keep your wealth safe from unforeseen events such as serious illness, accidents, or death. We can never predict the situations that will come our way, and honestly, I truly have no idea what I’ll encounter after finishing this article.
2. Enable Long-Term Investment: Having enough life and health insurance helps you avoid having to sell your investments early when unexpected emergencies come up. I can't believe that the money I've invested has now gone towards paying medical bills or treatments.
3. Provide a Safety Net for Loved Ones: If something happens to you, insurance policy ensures your family can keep their standard of living and financial stability, at least for the next 2 years to stabilize their financial and move on.

Types of Insurance to Consider:

• Health Insurance: Covers medical expenses, so you don’t dip into your retirement savings. Maybe you can use BPJS if you think you don't have any budget for it today.
• Life Insurance with Investment (Unit Link): Combines life protection with potential returns from investments in stocks or bonds.
• Critical Illness Insurance: Provides financial support if you’re diagnosed with a serious illness.

When I first chose to get life insurance, I didn't think of it as just another bill. I viewed it as protection for my family's future. I picked a unit-linked policy with a critical illness option, and here’s why it made a big difference for me.What about the life insurance? That's my family's cash backup. If something terrible happens to me, I am confident that their hopes and financial stability will stay strong even if I lose my income. They may be assured that they will have the resources to continue making progress, regardless of the circumstances.

What is a critical illness rider? That's my safety plan. If my health changes unexpectedly, like getting cancer or having a stroke, this coverage will protect my funds. It means I can concentrate on getting better, pay for the best treatment, and also take care of my family without using up our funds or jeopardizing our future plans. To me, these rules were my way of ensuring that everything I've worked for is safe, no matter what challenges I face. It's not only about money; it's about making sure my family can do well no matter what happens.

For example, if you’re a 35-year-old professional, you could allocate Rp 1-2 million per month toward a unit-linked life insurance plan. Over 20 years, this not only provides you with life coverage but also builds an investment portfolio.

Practical Steps to Get Started

Taking on risk doesn’t mean gambling. It means making informed, strategic decisions. Here’s how you can start:

1. Start Small

If the idea of risk makes you uncomfortable, begin with a small percentage of your portfolio in higher-return assets like stocks or index funds. For example, invest 10-20% of your monthly savings into equity mutual funds or ETFs.

2. Invest Consistently

Use strategies like dollar-cost averaging, where you invest a fixed amount regularly regardless of market conditions. This minimizes the impact of market volatility. For instance, set up a recurring investment of Rp 1,000,000 per month into an index fund.

3. Diversify Wisely

Don’t put all your eggs in one basket. Spread your investments across:

• Stocks for high returns
• Bonds for stability
• Real estate for long-term growth
• Insurance for protection

4. Think Long-Term

Wealth isn’t built overnight. Stay invested for the long haul to let compound interest work its magic. Historically, the longer you stay invested in stocks or mutual funds, the lower your risk becomes.

5. Educate Yourself

Knowledge is your greatest ally. Attend financial literacy seminars, read books on investing, or follow reputable financial planners. For example, in Indonesia, platforms like Bareksa or Bibit offer user-friendly tools to start your investment journey.

The Real Risk Is Doing Nothing

Here’s the harsh reality: The biggest risk to your retirement isn’t a volatile stock market—it’s inaction. It’s staying in your comfort zone, avoiding risk altogether, and waking up one day to find out that your nest egg isn’t enough.

Imagine the regret of missing out on the chance to grow your wealth exponentially because you were too afraid to take the first step. On the flip side, imagine the pride of watching your investments grow year after year, knowing that you had the courage to plan boldly for your future.

Your Future Self Is Counting on You

Taking investment risks doesn’t make you reckless—it makes you wise. It shows that you understand the value of growth and the power of time. So, don’t let fear hold you back. Take that first step today, even if it’s small. Your future self will thank you.

Remember, the best time to start was yesterday. The second-best time? Right now. Start investing, embrace the risk, and let compound interest be your secret weapon to a prosperous retirement.

All set to start acting? Comment or reach out; I would be happy to assist you in negotiating your road to financial freedom. Let's bring your goals for retirement to pass. ??