Have you ever wondered if there was a better way to evaluate risk?
Risk is one of the most important aspects of successful long-term investing, and it can be challenging to get it right.
You’ve probably taken too much risk at some point. Some investors assume that they have to take substantial risks in order to build wealth, so they’ll try to gain too much from a single investment or make big bets on a few individual stocks. These investors can end up out of the market entirely after a sharp sell-off, however, and they typically buy back in at higher prices.
You may also know what it feels like to take too little risk and miss out on strong gains. If you steered clear of stocks after the 2007-2009 bear market, you forfeited years of terrific returns.
You may need to take some risk if you hope to maintain your quality of life in retirement and also leave something for your children, but how much risk is ‘right’ for you?
A true assessment of risk should answer these three essential questions:
1. How much risk can you tolerate?
2. How much risk do you need to take in order to reach your goals?
3. Are you invested in a way that’s consistent with your risk tolerance and your goals?
For years, investors have answered these questions generally: they think of themselves as conservative investors, so they invest primarily in bonds, for instance. They may not recognize that their bond portfolio may pose significant risks, including the risk that they may not generate enough of a return to meet their investment goals.
A More Detailed Risk Analysis
Today, there’s new technology and decades of data that can we use to give clients a more detailed analysis of risk and help them come up with more accurate answers to these important questions. These tools have helped clients better understand their true tolerance for risk and they've helped us create portfolios that are consistent with clients risks and goals.
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