Broker Check

What is Risk Tolerance?

November 09, 2023

          What is Risk Tolerance? We've all heard that term thrown around when talking about investing, but what does it REALLY mean? Well, if you're investing in a 403b or the FRS Investment Plan, understanding your personal risk tolerance is important, mainly so you don't screw up your plans. 

          There are two things that really come into play when we talk about risk tolerance. The first is, how soon are you going to need the money? If you're planning to retire in the next year and will need funds, you may not be able to weather the next recession without having to sell off shares at a loss if your investments are aggressive. So, assessing your short-term needs is critical to measure just how much risk you're even able to sustain. 

          The second is, what I call "the gut check". If history repeats itself, which it's been doing all throughout my 23 years in this business, the markets go up and down and eventually make a comeback to hit all new highs, as the economy continue to grow. That all sounds great. But if you owned all of the same asset class, such as growth stocks, your portfolio was like riding a roller coaster this las year and if it freaks you out to the point that you panic and sell, also known as capitulation in the financial world, you probably had more risk than you were comfortable with. By mixing up your assets, like US stock, International stock, Fixed Income and Cash you get a more comfortable and smoother ride. 

          If you have no idea how your investments are allocated or how much risk you have, give us a call. I'm happy to offer a complimentary review and give you my advice to help make your investing journey more comfortable.