Worrying About Your Portfolio? Why You Need to Know Your Risk Tolerance [VIDEO]

Knowing your Risk Tolerance or Risk Profile is important for smart investors. Below you’ll learn what it signifies AND why you need to know it.

Which Model Portfolio is Right For You?

If you work with an advisor they often use a few model portfolios which they’ll adapt for the unique needs of each client. Your risk profile indicates which of these model portfolios might become a good basis for your own, custom portfolio.

TYPES OF INVESTORS

  • Conservative

  • Moderate

  • Aggressive

Investors are usually categorized as “conservative”, “moderate” or “aggressive”, with in-between categories of “moderately aggressive” and “moderately conservative” which are based on your questionnaire responses.

The Conservative Investor

If you absolutely do not want to risk losing money, or if your first priority is consistent income to live on, you are a conservative investor. If these are your concerns and you are retired or about to retire, you should probably avoid high-risk investments.

If you retire with an aggressive portfolio and your investments tank, it could take (many) years to rebuild your savings, years you might not have.

The Moderately Conservative Investor

However, many pre-retirees and new retirees are moderately conservative: they are cautious with money in their lives and don’t want to take on a risky portfolio, but they still have a need to accumulate assets because they have either started saving for the future too late or lost assets as a result of market downturns or poor or unfortunate financial decisions.

The Aggressive Investor &

Moderately Aggressive Investor

Aggressive and moderately aggressive investors commonly want to match or beat the markets. Or, they are looking to save for retirement at a highly accelerated rate.

Some are “market junkies” who watch Wall Street on a daily basis. Most of them are expecting to build substantial wealth someday.

They tend to be young investors or in the middle stage of life. Most of have NOT been hit hard financially as a result of investing, and many of them have substantial income or savings.

The moderately aggressive investor is willing to wait a bit longer to reach his or her goals, while the aggressive investor tends to be in a hurry by comparison.

The Moderate Investor

Typically, the moderate investor starts investing roughly about the time of major life events – that first stable job with a corresponding 401(k), a marriage, the start of a family.

Often, the moderate investor is a younger investor saving or investing for long-term goals (usually their child’s college education and retirement). These midlife investors frequently have a “balanced” portfolio, with a mix of conservative and riskier investments across varied investment classes. These investors are willing to accept some losses and risks and are pragmatic and usually educated about the realities of investing and their investment options. Some moderate investors are retired or nearly retired, having either retained their investment stance out of necessity (they need to continue accumulating assets in retirement) or out of preference (they do not want to “miss out” when the bulls run on Wall Street).

These midlife investors frequently have a “balanced” portfolio, with a mix of conservative and riskier investments across varied investment classes. They are willing to accept some losses and risks and are understand the realities of investing and their investment options.

Some moderate investors are retired or nearly retired, having either kept their investment stance out of necessity (they need to continue accumulating assets in retirement) or out of preference (they do not want to “miss out” when the bulls run on Wall Street).

What’s your risk number?

Now that you know all this it’s time to figure out your risk tolerance. You can use our free tool to learn what your risk number is. It’s great information to help you build the best portfolio for your goals.


 

Source:
This material was prepared, in part, by MarketingPro, Inc.

 

Beyond Stocks: How to Combat Market Ups & Downs [VIDEO]

We all seem to know a day trader or two, someone constantly hunting for the next hot stock. That’s not what I’d consider smart investing. Here’s why it’s wise to diversify your portfolio:

Diversification Helps You Manage Risk

We all want a terrific ROI, but risk management matters just as much in investing, perhaps more. That is why diversification is so important. There are two great reasons to invest across a range of asset classes, even when some are clearly outperforming others.

REASON #1:

Potentially Capture Gains in Different Market Climates

If you allocate your invested assets across the breadth of asset classes, you will at least have some percentage of your portfolio assigned to the market’s best-performing sectors on any given trading day. If your portfolio is too heavily weighted in one asset class, or in one stock, its return is riding too heavily on its performance.

Your portfolio is like a garden. A good gardener will plant a variety of flowers to ensure something is always blooming. The gardener knows that some flowers eventually die off or may not grow well but if there is enough diversity the overall picture will still look good.

REASON #2:

Potentially Less Financial Pain if Stocks Tank

If you have a lot of money in growth stocks and aggressive growth funds (and some people do), what happens to your portfolio in a correction or a bear market? You’ve got a bunch of losers on your hands. Tax loss harvesting can ease the pain only so much.

Diversification gives your portfolio a kind of “buffer” against market volatility and drawdowns. Without it, your exposure to risk is magnified.

ADVICE:

Don’t put all your eggs in one basket!

Believe the cliché: don’t put all your eggs in one basket. Wall Street is hardly uneventful and the behavior of the market sometimes leaves even seasoned analysts scratching their heads. We can’t predict how the market will perform; we can diversify to address the challenges presented by its ups and downs. 


Sources

  1. usatoday30.usatoday.com/money/perfi/retirement/story/2011-12-08/investment-diversification/51749298/1 [12/8/11]
  2. This material was prepared, in part, by MarketingPro, Inc.

How Will A Clinton (or Trump) Presidency Affect the Market? [VIDEO]

Whoever wins the election, the status quo will likely remain on Capitol Hill. As a Morgan Stanley report commented in July, “Current evidence suggests the U.S. elections in November won’t yield outcomes that substantially change market fundamentals.”

election-thumb-play

 

SCENARIO #1:

What Happens if Clinton Wins?

Morgan Stanley analysts foresee Clinton winning the election and Republicans retaining their majority in the House of Representatives. In that scenario, Clinton wins, but her administration has difficulty enacting any of its planned reforms.3

SCENARIO #2:

What Happens if Republicans Lose Control of the House or Trump wins?

If the Republicans lose control of the House or Trump wins, Wall Street could see some pronounced short-term volatility, which is also an outcome that could possibly affect market fundamentals. Even if one candidate or the other wins by a landslide, their most ambitious proposals may never get off the ground. As Morgan Stanley asserts, “attempts by Clinton or Trump to exercise transformative power domestically will be stunted” by a lack of support in Congress.3

So, What Should You Do?

Should stocks rollercoaster before or after Election Day, keep calm. Any disturbance may be short-term, and your investing and retirement saving effort is decidedly long-term. The election is a big event, but earnings, central bank monetary policy, and macroeconomic factors may have a much bigger impact on the markets this fall.

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Sources
4 – This material was prepared, in part, by MarketingPro, Inc.