The Hidden Risk of a Conservative Investment Strategy

Security: we all crave it. From our environment to our relationships, it’s natural to be motivated by a sense of safety, protection and certainty. It gives us a feeling of control over those dreaded ‘what if’ scenarios that seem to play on a loop in our heads.

We install video doorbells and tell our friends to text us when they get home. We double check - then triple check - that we turned the curling iron and oven off before leaving the house. We check our credit cards for suspicious activity and ask our loved ones ‘what’s wrong’ when they seem down.

The need for security is so ingrained in us, it oftentimes seeps into our investment and financial strategy. But, investing too conservatively is one of the riskiest moves you can make with an investment portfolio. And it’s a move a lot of women are making.

 A portfolio that is too conservative can hinder you from realizing the maximum potential for long-term growth.

 Not all women are conservative investors, and not all men are risk-takers. But there is a pattern that experience points me to: women tend to have more conservative portfolios.

 I’m here to share my four biggest suggestions for anyone concerned they are investing too conservatively. Let’s get started!

#1 Set A Goal.

 I find a lot of women look to invest for the sake of investing. But, without a clear goal in mind, it’s easy to get caught up in the ups and downs of the market because the only mantra on your mind is growth. Rather than just throwing some savings into your portfolio, choose a goal - how much do you need to save for your child’s education, your dream home, or that small business you’ve been wanting to start? Determine your goal, define how that looks financially, and let your money do the work for you. Don’t get me wrong, the ups and downs will still occur, but now your money is tied to a long-term, tangible goal you can track.

#2 Make a Timeline.

Now, once you have a goal in place, you need to identify how long you plan to use this money (or, as we call it in the industry, the “time horizon”) and how you’ll use the money in the future. Let’s take the above goals as an example: if you’re saving for a child’s education, the money will be paid via tuition over several years, whereas if you’re saving for a home, it might be a one-time down payment. Understanding not only what you’re saving for, but how that money will be used, empowers you to work towards your goals more accurately.

#3 Assess your risk tolerance.

Now it’s time to strategize! Using your goal, your time horizon, and the installments you’ll be looking to pay, you can determine a risk level that fits best with your plan. You can easily determine how comfortable you are with risk by asking yourself a few questions. If the stock market drops and your portfolio were to decrease by 40%, how would you feel? Would you lose sleep knowing that this money was for a home down payment you are hoping to buy in a few months? Or would you be fine and continue on knowing this money isn’t needed for several years and you have time to let the portfolio potentially recover? My goal working with clients is that we help them understand the risks and build a long-term financial plan with an investment portfolio that’s suitable for years and decades to come.

#4 Set It.

 Once the dollars are invested, it’s time to let your money work for you. That’s right, make the investment, and leave your funds to grow. Too often, women are too strategic for our own good: we’ll constantly check out accounts, and then attempt to strategize and re-strategize as the market fluctuates. If the market is doing really well or really poorly, women are motivated to change their strategy. But this can be the worst time to make strategic changes. Instead, set a time once a year to go back and review your strategies and goals with your money. As time goes on, our goals or timeline may change. It’s important to set a plan and stick to it and avoid reacting to changes in the market that may be short-term. 

There’s no problem with craving security. But, when that sense of protection begins to hinder our chance to grow our money and maximize our potential? It’s time to make a change. Go, go, grow girl!

Allie Williamson

Financial Advisor at Northwestern Mutual

This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Please remember that all investments carry some level of risk, including the potential loss of principal invested. No investment strategy can guarantee a profit or protect against a loss. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM) and its subsidiaries. Northwestern Mutual Investment Services, LLC (NMIS) (investment brokerage services), a registered investment adviser, broker-dealer, and member of FINRA and SIPC, and Northwestern Mutual Wealth Management Company? (NMWMC) (investment advisory and trust services), a federal savings bank. NM and its subsidiaries are in Milwaukee, WI.

 Allison Whitney Williamson is an Insurance Agent of NM. Investment brokerage services provided as a Registered Representative of NMIS. Investment advisory services provided as an Advisor of NMWMC. CA License: 0J00778 NPN: 17340219