Tag: sequence of returns risk

Carrying debt while investing is known as “leverage.”  Leverage can increase your net worth if you’re investing borrowed money at a higher return than the interest rate you pay to borrow the funds.  However, high return assets such as stocks come with high volatility.  Rather than using bonds to decrease your risk exposure, consider paying down debt.

You invest for the long-term.  Long-term, stocks outperform bonds.  Why do you care about short-term volatility?  Shouldn’t you invest 100% in stocks and wait out any market underperformance?  Yes, and no.  It depends on how much you need to protect it from “retirement date risk” and “sequence of returns risk.”