MONEY OBEDIENCE

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As with any other aspect of our lives, there are risks attached to our finances. We never know exactly what the next day will bring. But, we know that we will have to act and react in ways that account for what we think the next day might bring.

Risk is the possibility of suffering a loss or a gain. People take risks, because there is the possibility that in the end things will work out much better than if one did not take any risks.

We take all kinds of risks in our everyday lives — getting behind the wheel or being someone else's passenger, trying a new sport or not doing enough exercise. We also take financial risks, even if one refrains from "playing the markets". If you invest in stocks or bonds, you assume the risk that an asset may decrease in price ("market risk"), even while you hope that the asset price will increase in the long run.

When investing in risky assets such as the stock market, you will assume the risk that the asset increases or decreases in price, called the "market risk". When discussing long-term savings strategies, aside from market risk, we will also discuss the risk that you will not reach your financial goals, purchasing power risk , and longevity risk. (Longevity risk plays a role in retirement planning.)

No matter which way you slice it, you will always assume some financial risk in the above list. The trick is to design a savings plan, which gives you exposure to various risks that make you comfortable.