As a rule of thumb, the potential return on any investment should correspond to its level of risk. Most experts agree that you shouldn't take too much risk with your pension accumulation. On the other hand, it's important to take enough risk to build assets that will finance a comfortable retirement. Finally, how much risk you should take depends on both subjective factors, such as how comfortable you are with market fluctuations, and objective ones-how long it will be until you retire, how much income you'll really need to maintain your desired standard of living, and what resources you may have to call upon other than your retirement benefits. Here's a quick review of various kinds of investment risks.
Market risk is the possibility of losing money because of a market deadline.
Inflation risk may well be the most important risk for the long-term investor. Conversely, of course, the same investments may gain in value when interest rates decline. But timing the market means you have to guess right twice and being wrong about either a dramatic rise or a sudden fall in prices can mean a significant loss to you. Foreign investment risk includes exposure to political events, currency exchange rate change rate changes, and other conditions that affect the value of investments traded or located in foreign countries.