How do you feel about risk? Honestly?
You can quantify most key factors in investing but you can’t
quantify the most important one – emotion. You can’t
measure how you’ll react when you’re faced with
the prospect of loss. Or how you’ll react if the loss
actually happens.
How you feel about risk is a difficult question and one that
can’t be answered with any precision. But it’s
a vital question and one you’ll have to deal with.
 |
"Men may change their climate,
but they cannot change their nature"
Joseph Addison |
|
We all want our money to grow, but the more growth potential
an investment has, typically the riskier it will be. That’s
the risk-reward challenge at the center of just about every
investment decision.
You really have to be honest with yourself and realistic
about your willingness to tolerate risk. You have to weigh
your emotional ability to accept risk against your desire
for a specific level of return. You have to find that delicate
balance of risk and reward that is right for you. You have
to ask yourself . . .
-
How comfortable would you be watching the value of your
investments decline?
-
Would you be able tolerate large fluctuations in the
value of your portfolio if there's a prospect of large
returns?
-
Would you prefer a smaller return on your investments
in exchange for less fluctuation in value?
Some people love the action and thrive on the risk and uncertainty.
Others lose sleep over it. So what is the right amount of
risk for you?
The easy answer is an amount of risk that will allow you
to sleep at night. That will let you go through the day without
wondering a dozen times how your portfolio is doing.
To arrive at that answer requires some self-examination.
There is no magic formula to help you find the right balance.
The important thing is for you to be aware and thinking about
it.
Important information about our financial planning services can be found at the bottom of our
homepage.
|
