Risk tolerance is a buzzword that gets used in many financial conversations, but what is it, and how does it affect your retirement plan? Dan explains.
(Click the featured times below to jump forward in the episode)
First Things First.
- [1:48] – In The News: Is A Crash Looming?
- [4:12] – GTK: We flip the script and ask Dan what he’d like to do in retirement.
- [7:36] – Mind Over Money: Dan discusses loss aversion.
What Is Risk Tolerance?
- [10:39] – Your level of risk tolerance is the level of risk you’re comfortable with in your portfolio. Determining your risk tolerance is one of the most important conversations we’ll have with you as you come in for a visit. We really can’t build you a plan without knowing how much risk you’re comfortable with. Some clients prefer to “risk it for a biscuit” so to speak. Others are incredibly conservative investors. Knowing the level of volatility you can withstand will help us to shape your investment strategy appropriately.
How Do You Determine Someone’s Risk Tolerance?
- [13:26] – As we mentioned, this is one of the most important conversations we can have with a client. We usually spend time assessing your risk tolerance within our first couple of meetings. We’ll also conduct quarterly and annual review meetings to determine whether your risk tolerance has changed. Furthermore, we can assess the level of risk in every portfolio we put together. We want you to understand exactly how much risk you’re taking with your investments.
Do Most People Have Similar Levels Of Risk Tolerance?
- [15:52] – Look at risk tolerance levels as a bell curve. Most people in the investing process like a balanced portfolio. However, we do have outliers. Some folks we work with are young and willing to take more risk for more reward. Others are older and trying dial their risk down as they approach retirement.
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