When managing risk,
one size does not fit all

Key takeaways:

• An overly cautious approach to investing and managing risk can introduce its own vulnerabilities.
• An investor can transform risk into opportunity with a diversified portfolio, informed decision making, and the help of a financial professional.

03/05/2025 – Investors frequently perceive risk through a narrow perspective, concentrating heavily on the daily fluctuations of the stock market. However, for individual investors, risk pertains to financial security—the ability to accumulate and safeguard wealth, and the capacity to manage significant life transitions, such as retirement planning, family support, or career changes.

The results shown represent past performance; past performance does not guarantee future results.

The perception of risk is inherently personal, influenced by factors such as income stability, financial obligations, and the overarching challenge of maintaining long-term financial well-being. However, an excessively cautious investment strategy can also introduce its own set of vulnerabilities.

Some investors, especially those who prioritize financial security above all else, may prefer holding excess cash or avoiding market exposure entirely because of a lack of financial confidence. According to a recent Advisor Authority survey by the Nationwide Retirement Institute^®, nearly half of all investors are keeping cash on the sidelines as a strategy to mitigate market risk. This aversion to market risk was more prevalent among non-retired women investors compared to men, with 48% of women versus 42% of men exhibiting this tendency.

While holding cash on the sidelines may seem safe in the short term, inflation gradually erodes the purchasing power of those savings, widening the gap between an investor’s financial goals and their actual outcomes. Apprehension toward investing—whether because of uncertainty, systemic barriers, or a perceived preference for stability—can cause missed opportunities, making it more challenging to build long-term wealth.

As the accompanying chart illustrates, the level of risk (measured by standard deviation on the horizontal axis) is an inherent component of capturing long-term returns (shown on the vertical axis). Assuming more risk is essential to overcoming the headwinds investors face in achieving their financial goals. Risk, when approached strategically, should not be seen as an obstacle but as a powerful tool that can be tailored to meet the unique needs of each investor.

The headwinds to achieving future financial security are many—longevity risks, retirement health care costs, caregiving duties, and career disruptions. These challenges can undermine an investor’s confidence and sense of empowerment, leading to emotional decisions and poor choices. According to our recent survey, two in three women investors and three in four Gen Z and Millennial women investors report that caregiving responsibilities have affected their careers.

Ultimately, risk is not a one-size-fits-all concept. Each investor’s path is shaped by unique circumstances. An investor can transform risk into opportunity with a well-diversified portfolio, informed decision-making, and the guidance of a financial professional. The key to the long-term success of any financial plan lies in emotional resilience, balancing caution with opportunity, and developing a clear investment strategy that is flexible enough to navigate the unpredictable nature of risk.