Assessing Your Risk Tolerance: Why It Matters in Investing – Contact Tim Now!
For some individuals, nothing feels worse than seeing their account drop; conversely, others regret losing out on potential gains. Perhaps, the first investor’s portfolio was too hot, while the second’s portfolio was too cold.
FinaMetrica’s® risk profiling system generates a personalized assessment of an individual’s risk tolerance and provides an opportunity to gauge if their current investments are too hot or too cold.
The evaluation is web-based, consisting of twenty-five questions, including eight optional demographic questions. It only takes fifteen minutes to complete. Upon completion, you receive a detailed report that includes your risk tolerance score.
After you receive your score, I can transfer it to FinaMetrica’s® asset allocation mapping system to convert your score to a portfolio. I then use fi360’s proposal report to compare your current assets to the portfolio generated from your risk tolerance score.
Why is Risk Tolerance Important?
Psychologist Daniel Kahneman won the 2002 Nobel Prize in Economics for bringing to light that people hate to lose money more than they like to make money. Aversion to loss is one of the reasons I ask you to measure your risk profile online at FinaMetrica. I would not want you to be holding a portfolio that is 80% stocks, which might lose 30% in a bad year, when your profile indicates that you would sell everything if it dropped even 5%.
For others, the opposite is true. You might need to take more risks to reach your financial goals. As your financial advisor, I need to alert you and give you options (e.g., take more risks, save more money, diversify your investments more). Each client’s risk profile must be respected.
These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice.