When determining how to invest your assets, it’s important to take your risk tolerance into consideration. Each investor has a different risk tolerance based on their unique set of circumstances. To determine ones risk tolerance, it’s vital to separate one’s ability to take risk from their willingness.
An investor’s ability to take risk has to do with objective factors, such as:
- Age of the investor
- The length of time to obtain an investment goal
- Current amount of assets
- Current income/expense
An investor’s willingness to take risk is more subjective and relates to the individuals psychological or emotional reaction to financial loss. Looking at past experiences or hypothetical scenarios is a common way to determine an investor’s willingness to take on risk. For example, in the past when your stock portfolio value declined by 20%, were you more inclined to buy more stock or sell?
As an investor, it’s important to review your risk tolerance on a periodic basis. For a complete assessment, contact Trust Point for an appointment today. Call 800-658-9474.