People often sort investments into two groups: “safe” and “risky.” Cash, money market funds, certificates of deposit (CDs), and bonds may feel safe because their values usually move less. Stocks may feel risky because their prices can rise and fall quickly. But every choice has some kind of risk.
In the big picture, there is only one real risk: inflation. The Consumer Price Index, or CPI, tracks changes in the prices of everyday goods and services. Over the last hundred years or so inflation has increased by about three percent annually. At this rate, prices after 30 years (during a two-person retirement) would be about 2.4 times higher. Something that costs $1 today could cost about $2.43 then. Imagine keeping $100 in a box for many years. You would still have $100, but it might buy less because prices have risen.
Cash, CDs, and similar can help insulate money from sudden market swings and provide peace of mind, but all have similar long-term outcome risks: the reduction of purchasing power after inflation and taxes. Seeing steady statement values can give a false sense of security even while its buying power quietly shrinks.
Stocks have different risks, but they can provide growth and income. For example, the S&P 500 paid about $14.89 per index share in dividends in 1996 and $78.51 in 2025. * Did you catch that? Over those 30 years, consumer prices (inflation) roughly doubled, while the cash dividend of the S&P 500 more than quintupled. **
The index itself also rose greatly over that period, from 741 at the end of 1996 to more than 7,000 in 2025. The trip was not smooth: the index lost about half its value during two major downturns. This shows why stocks can be useful for long-term goals but stressful—and risky—for money needed soon. Past performance does not guarantee future results, but logic as well as history suggests the results are on the side of their continuation.
So “safe” does not mean “no risk.” A stable investment may safeguard the number of currency units (paper dollars) you have today but lose buying power over time. A stock investment may bounce around today but have more opportunities to provide income and growth over many years.
A useful way to think about risk is to match each type of money with its job. Money for near-term needs should be easy to access and less likely to fall sharply. Money for goals many years away may have more time to recover from market declines and benefit from growth.
Bottom line: Every Investment has Risk. The goal is not to avoid all risk; it is to choose the risks that fit your goals, timeline, and comfort level.
Owning enough low-volatility assets to cover about 12 to 24 months of expected income needs may also reduce the chance of having to sell shares of quality companies during a market drop. The right mix depends on the investor.
Owning well managed companies in a diversified equity portfolio with a long-term outlook can provide growth without depending on the success of a single stock. It is not the same as gambling or betting on the latest “can’t miss get rich” investment being promoted. ***
Acting on a well-developed plan and replenishing the short-term funds from equites as needed rather than continually reacting to current news and events in the economy and the markets, can provide comfort in the present and confidence about the future.
If you are looking for an independent wealth management firm, give us a call. We would be glad to meet with you and see whether we are a good fit for each other.
Securities and Advisory Services offered though LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
* Dividend payments are not guaranteed and may be reduced or eliminated by the company at any time.
** The S&P 500 index tracks the stock performance of the 500 largest companies listed on the US stock exchanges. Indexes are unmanaged and cannot be invested directly.
*** There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio nor protect against market risk.