Risk tolerance is an extremely misunderstood element of finance. In fact, I personally believe that if we received adequate education about investing early on, the question of personal risk tolerance would become inconsequential because people would be investing based on appropriate parameters versus fear.
I put this question to my planners – what do you wish more people understood about risk tolerance?
Here’s what they said:
“I wish more people understood that risk tolerance isn’t a one-size-fits-all concept based solely on age. It’s more nuanced than that and influenced by factors such as financial objectives, the flexibility of those objectives, individual circumstances, and your psychological outlook on money.”
“Risk correlates with reward. If you take on more risk, you can potentially earn more rewards. If you’re risk averse, expect the rewards to be more subdued. Everybody has a different appetite for risk. Your expectations should also differ. Unfortunately, nothing exists that is no risk, all reward!”
“That there is risk in every aspect of life, whether that’s taking a walk in the park (tree limbs can and do fall unexpectedly!) or sitting on your couch (earthquake, anyone?) It’s important to balance the risk with the odds of it happening. It’s not uncommon for people to think that the stock market is too risky for them. If you have ten years for your investments to sit, are we worried about the day-to-day risk of the market value changing? Not so much. Just because something feels uncomfortable doesn’t mean it’s overly risky!”
There you have it. Is understanding how your risk tolerance affects your investments a priority this year? Then I recommend you chat with us sooner than later… you can find out more about that here.
