Understanding Your Risk Tolerance

John Clouden Senior Vice President
To understand investing, you must realize that risk and reward go hand in hand. All investments involve some degree of risk and it’s important to recognize that you could lose some or all of the money you invest. By taking greater risk, you have the potential for a greater investment return. This would be considered an aggressive investor, or someone with a high risk tolerance who is willing to risk losing money to potentially get better results. A low risk tolerance investor would be a conservative investor; someone who desires to maintain their original investment.

Identifying your risk tolerance

Everyone has their own risk tolerance that is unique to them. The financial industry tends to lump individuals together on a preserved risk tolerance based on their age alone. If you’re this age, you should be this aggressive. Instead, I personally believe that the amount of risk you sustain should be based on your needs. The goal is to accomplish your financial goals with taking the least amount of risk. If you’re losing sleep over your investments, then you have not correctly identified your risk tolerance.

What’s your roller-coaster

The perfect analogy when deciding risk levels is to think of a roller-coaster. Are you comfortable with the small roller-coaster that provides some smooth ups and downs? Or are you looking for a thrill seeking, edge of your seat with large swings and turns type of ride? Maybe you’d be most comfortable with something in between both of those spectrums. When building your personal investment portfolio, it is important to take in all the factors that come with equities and fixed income. In addition, know how long your time horizon is and stick to your plan. Because like with roller-coasters the only person who gets hurt is the one that gets off in the middle of the ride.
For more information on handling market volatility listen to my interview with Clay Moden on 106.5FM WYRK. Also if you need assistance with your own portfolio, call our office to set up an appointment.
You can catch our weekly Plan.Protect.Invest. segment live on WYRK 106.5FM at 7:20am every Wednesday. Each week we will have a Sgroi Financial planner on with Clay Moden and the WYRK morning show to discuss financial topics to educate and help their listeners. Since 1971, Sgroi Financial has proudly served Buffalo, NY and the Western New York community from our West Seneca location.

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