Risk and your investing success.
One of the most critical components to successful investing is determining your risk tolerance. Most advisors would define this as how much risk you can stand financially and what you are comfortable with investing. We believe it’s a lot more than that and since no two investors are the same, it will probably take a little more than a one page questionnaire.
We start by looking at the big picture which includes, to name just a few, health, age, family, job, business, insurance, and balance sheets. All of these can influence the types of investments you should make first. To be honest, some people need to make investments in non-security related items before they can assume enough risk to step into the equities or bond markets. Business owners should come to terms with the additional risk burdens posed by the nature of their market space.
We also want to get a feel for your emotional capacity for risk, your self-discipline, and your reactions to uncertainty and adversity. Many investors, while completely understanding the need to accept risk, cannot. They cannot emotionally handle the situation. Others, even with strong risk aversion tendencies, have mentally disciplined themselves with methods to cope to their natural reactions to volatility.
A good relationship with a financial advisor helps you achieve a healthier understanding of risk. Coupling education with emotional support helps build a disciplined approach to handling risk resulting in benefits beyond finances. We face adversity every day and an objective advisor can help you grow your ability to recognize real concerns vs. perceived, common illusions, and how our emotions work against us.
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