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Chapter 11. The Name Game—Understanding ... > How Much “Risk” Are You Prepared to ... - Pg. 107

The Name Game--Understanding the Different Types of Mutual Funds 107 How Much "Risk" Are You Prepared to Take with Your Investments? In Chapter 10, you got a good dose of risk taking. So now you know that every investment has risks. As someone who is trying to reach a goal, you need to match your 401(k) investments with the risks you are willing to take. Once you do that, you can determine if that strategy will get you to your goal. Here's an example of three people who take different approaches to reaching their goal. Maria, John, and Sue meet for lunch. They get to talking about retirement. All three make the same amount and they want to retire at the same age (in about 35 years). Coincidentally, they are all saving the same dollar amount in their 401(k) plans. But because of the investments they've selected, they're all heading in different directions: Table 11-1. All Three Save the Same, but Invest Differently Maria Yearly Savings Target Rate of Return Dollars at Retirement Dollars Adjusted for 3% Inflation $6,000 6% $668,609 $362,772 John $6,000 8% $1,033,901 $541,922 Sue $6,000 10% $1,626,146 $829,421 There are two very important lessons in the above chart. 1. All three folks think they are heading for the same goal, because they're saving the same amount of money. They forget about the investing side of the formula. Who wants to give them the bad news?