Assessing your investment risk tolerance
Deciding how much you want to regularly contribute to your retirement fund or long-term savings is only part of what you need to consider when investing. Another important factor to consider when investing is your risk tolerance.
Investment risk tolerance refers to how much you are willing to withstand in losses if your investment performs poorly. Typically, high-risk investments generate higher returns on investment (ROIs) while low-risk investments generate lower ROIs but are usually more stable during periods of market volatility.
Both high- and low-risk investments have their advantages. Usually, a mix of both in your portfolio is beneficial, but how you skew that balance will depend on your risk tolerance and needs at the moment. Check out some of the questions you need to keep in mind for assessing your investment risk tolerance and balancing your portfolio to meet your needs.
What to keep in mind when determining your investment risk tolerance
- Goals — What are you saving toward? Is it your retirement? A new car? A bigger house? Decide what your goals are and what you need to reach them. Choose an investment strategy with a balance of high and low risk that can accommodate your ability to reach these goals.
- Age — Younger investors are typically able to afford more risk because their investments have more time to balance back out if they are subject to a bear market. Investors closer to retirement may want to shift their portfolios to be more conservative to avoid losing savings before retirement.
- Wealth — Someone with a lot of money in their portfolio may be able to afford more risk than someone who is just starting out or has no cushion if values drop. However, even for wealthy folks, you may not want additional risk, which, if too risky, could reduce your wealth.
- Personal tolerance — Some people are more comfortable with risks. Others are more averse to risks and loss. Regardless of your goals, age and wealth, you’ll want to avoid stress by pushing yourself too far out of your personal comfort levels. Talk to a financial professional for help with investing and not pushing your risk tolerance too far.
Talk to a ProVise CFP® professional about your investment risk tolerance
Whether you are a new investor or are close to retirement age, it’s important to find an investment strategy that works for you. There are no cookie-cutter strategies when it comes to your investment risk tolerance. Determining your risk tolerance has to be a personal decision that caters to your needs and personal comfort levels.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about your investment strategy? Contact ProVise today to schedule a complimentary consultation.