Risk vs. Reward: What’s Right for You Today?

How much risk should an investor take on, and what should the annual target returns be?

The primary reason that investors learn to invest is to grow their wealth.  The higher the rate of annual return, the faster wealth is built.  Meanwhile, the level of risk that an investor takes on should also be considered. An investor's age or the number of years capital is allowed to compound before withdrawals are made, should influence the level of risk that investor should take.  A few bad years of returns can lower the investor's wealth in the short term.   For example, stocks can sell off dramatically and an investor takes an unrealized loss of 15% to 30% for a year.  Enough time should be available for an investor to recover the losses before the capital is needed. 

Let me illustrate 3 scenarios:

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