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Risk Tolerance - The Basics

Risk Tolerance - The Basics

April 26, 2024

If you’re looking for sound Christian investment advice, you’ve probably asked yourself, “How much risk should my investment portfolio carry in order to achieve my financial goal?” That’s a great question. Your tolerance for investment risk is shaped by a) your timing to achieve your goal, b) the amount of risk you can afford, and c) your comfort level riding out unavoidable market volatility.

The basic principles are actually simple, and we can help you sort and prioritize them according to your goals. Essential elements and principles are these:

  1. Timing: If you are a young investor, with 30-40 years ahead to reach your financial goal, your tolerance for risk will likely be different than someone at midlife and beginning to save for retirement years. Likewise, a seasoned investor who’s been saving for many years will have a different risk tolerance as the retirement years draw near. Many timing and age variations will   factor into your level of risk tolerance.
  2. Affordability: The amount of money your current financial position will allow (with a view of your remaining earning potential) is also a factor. Also related to this question is your current or anticipated state of health. Along with WHEN you begin investing your earning potential and current and foreseeable expenses will also affect whether you take an aggressive or conservative approach to ensure available assets can achieve your goal. This involves calculating the returns you will need to have what you want when retirement comes.
  3. Sensitivity to market volatility: People differ in the amount of risk they are comfortable with. Aside from age and proximity to retirement age, risk tolerance or intolerance is inherent to all of us. It varies with individual circumstances and available resources. Be realistic and scrutinize your spending habits. Realize the external economic and sociopolitical forces at work around you and their implications for these questions. You can solidify your position on all these things through talks with a financial advisor who takes time to understand your particular interests and goals.

You’ll want to remain aware that all investment involves some risk—as necessary to attain reward. You can balance the inevitable discomforts of market volatility and strengthen your tolerance with conducive habits to keep your thinking on track over time. For example, you can mindfully anticipate situations where the value of your portfolio is reduced by 20-40%. Gage your emotional response and discuss how you feel about it with your financial advisor. These chats can help you toughen your resolve to stay the course when turbulent times arise.

You can count on any Strategic Stewardship investment management professional to help you clarify your goals. We’ll work with you to structure your portfolio in a way that best attains your investment goals. Because tolerance for risk is subject to change due to time and circumstances, we meet with you periodically to adjust your financial plan and accommodate needed changes.