By Kristin Hovencamp, CPWA®
A common refrain among investors is, “I want to make money, but I do not want to take any risk.” It is reasonable to want to avoid making risky investments, especially during times of market uncertainty. As essential as wealth preservation is, particularly during retirement, investment returns are also necessary. Thinking of your risk-and-return profile as a component of wealth management instead of stand-alone numbers helps put your fears into perspective.
Let us look at the numbers.
An investor with a more significant nest egg may be well-equipped to weather investment losses, but emotions can often get in the way. The thought of losing a particular dollar amount may sound terrifying. But the number may be underwhelming when observed in a greater context. Experimenting with various risk-and-return scenarios helps make clear the amount of risk you can withstand.
Age is nothing but a number.
Investment time horizon plays an essential role in determining risk tolerance. Investors with more birthdays have a shorter time horizon and often little appetite for risk. However, age may have less influence on risk tolerance if an investor’s retirement portfolio is not needed to generate monthly income. When balancing portfolio risk versus return, consider employing an asset allocation model that helps you continue living the lifestyle you have worked so hard for.
Do the numbers add up?
You must understand your whole financial picture. Do you have assets held in different accounts, private investments, or other sources of income? Looking at your entire portfolio versus an individual investment can decrease the chance of taking on too much risk or missing out on potential returns. Regardless of portfolio complexity, you can manage diversification accordingly.
You do not have to sacrifice returns when properly weighing the relationship between your risk tolerance and investments. Understanding your total nest egg will reassure you that you are maintaining the correct course. You can always change your target numbers if you decide to change your goals.
Kristin Hovencamp, CPWA® is an Investment Executive and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605.