“Nothing ventured, nothing gained.”
What is life without risk?
Risk is everywhere, every day. And we often go about our lives blind to risk until the unexpected happens.
But when it comes to your money and building wealth, do you know what you are risking? Is investing riskier these days? Do you know how much risk you can handle in your investments? More specifically, when markets head south, can you withstand the losses without losing sleep or panicking?
You might think you are okay with risk in your portfolio, but when push comes to shove, how much are you really willing to lose?
In a world where crazy things happen every day and uncertainty is looming politically, economically and even environmentally, it’s easy to feel ill at ease about your finances and the potential of reaching your goals. So, how do you figure out what you are comfortable with so your unease becomes excitement for the future?
What Is Risk?
Risk is fundamental to investing. There are a variety of risks in the financial world, and the reality is that any investment involves risk. Even if your “investment” is hiding your cash under your mattress, there is still risk of loss due to inflation or, God-forbid, a break-in. What it comes down to is that risk is the possibility that an adverse financial outcome could occur.
Some risks are avoidable; some are not. Avoidable risks are those that take place when your portfolio leans too heavily on stocks or bonds that have been unstable in the past or when your holdings are not diversified enough. For example, you may be putting too much of your company’s stock in your 401k plan. Or you may have too many overlapping US stock mutual funds, instead of being more globally diversified. Avoidable risks often occur when we underestimate risk and believe we can tolerate more than we actually can!
On the other hand, unavoidable risks are those that occur because our world is ever-changing, volatile, and we can’t predict everything. As much as we wish we could, unavoidable risks are are simply out of our control.
As if those risks weren’t enough to keep you up at night, there is another unseen risk that can impact your portfolio just as intensely as an obvious risk: the risk of being too conservative and not meeting your future goals. By overestimating risk and trying to avoid loss at any cost, you could be unintentionally sacrificing your future dreams, and no one wants to see that happen.
Risk is different for every person based on their unique situation, stage of life, and personality.
I see this firsthand when working with clients. Even in the same household, one may be a risk taker, while the other is more conservative. This is why standard risk questionnaires for many online tools are useless for couples. It is essential to know the risk level of the household, not just one person. Financial advisors are there to have in-depth conversations about risk, and to make sure the risk in the portfolio is in line with both partners risk levels.
Frustrated yet? Here’s the silver lining: while you can’t completely eliminate risk in your portfolio, you can absolutely ensure that the amount of risk you take correlates with the level of potential reward for you to gain. It is more than possible to match your investments to your goals, while still be able to sleep at night during market downturns. The key is managing risk and knowing what you want and need.
Investing scares a lot of people, yet they know it’s essential in order to live the life they desire down the road. Instead of blindly throwing your money into investments, crossing your fingers and hoping for the best, take the time to map out your goals, concerns, fears, and hopes. A lot of people categorize themselves as “medium risk” because it sounds like it’s the middle of the road. But that may not be detailed enough for your situation.
What if I told you that there is a way for you to pinpoint your personal risk that takes less than two minutes? What if if all this complex risk stuff could be quantified into a single “Risk Number” that was as unique to you as your fingerprint? Sound too good to be true? Thankfully, it’s not!
We have an online tool based on Nobel Prize winning research where you can find out your personal Risk Number. All in less than 2 minutes. Seriously. Give it a spin right now.
But that’s only half the story. Are you taking too much risk with your investment portfolio? Too little? How do you know? That’s why it’s also important to know the risk of your investment portfolio so you can find out if you are invested properly.
In short, your personal Risk Number needs to match your portfolio Risk Number. Or else this shit happens:
Using your personal Risk Number as a foundation, we gather info, look at the facts, and build a portfolio that is right for you. It’s a way to give consistency and direction to your financial plan.
Curious to know more? Check out this sample Risk Report so you can get a full picture of what is available to you as an investor.
Is your interest piqued yet? Let me use my proven investment strategies that are personalized to your risk level and needs. I would love to hear from you today at (248) 567-2160.