[Originally published on the EverythingFinance blog] Market risk is the likelihood that the value of your investment will go up or down over time. In general, the longer your investing timeframe, the more likely you are to approach the historical return potential for your investments.

Inflation risk is different. In short-term investing situations, inflation poses little risk to the value of your investments. Over longer periods of time, however, you need to ensure that your investments grow faster than the general costs of goods and services. Otherwise, inflation will erode the purchasing power of your savings.

Your Role

The most critical decisions are in your hands, particularly when you’re deciding which portfolio best meets your needs. Here are some of the steps you should take:

  • Decide your target year. What is your best estimate of when you’ll begin using the money from your Savings Plan investments? In deciding this, take into account other assets you have and how you plan to use them in conjunction with your Savings Plan investments. For example, you may have separate after-tax investments you’ll want to draw from before dipping into your Savings Plan account.
  • Determine your risk profile. Consider at least two factors – how you feel about investing and how much money you’ll need for a comfortable retirement. The first factor requires you to decide if you’re a conservative, moderate, or aggressive investor. The second factor requires you to consider whether your natural investment style is likely to provide enough return. A financial advisor can help.
  • Decide on your portfolio. Once you’ve decided on your target year and risk profile, select a LifeCycle portfolio or build your own portfolio from the portfolio building blocks and/or self-directed brokerage account.

Get help.

Review your investment decisions regularly to make sure nothing has changed that would alter your choice of portfolio. A professional financial advisor can help you make your initial investment selection and determine whether your investment strategy is on track over time (and make adjustments if it isn’t). As you review your investment strategy, be sure to consider all of your investments, not just those in the Savings Plan.