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What Is Your Investment Risk Tolerance and its Impact on Your Financial Plan?

What Is Your Investment Risk Tolerance and its Impact on Your Financial Plan?

9 May 2022

Your investment risk tolerance is unique to you and you only. Aside from your idiosyncratic preference for investment risk, additional factors will play a role in determining that risk level. Everything from your age to your job stability, number of dependents, timeline for retirement, and additional factors determine your investment risk tolerance and investing strategy.  

Investment risk tolerance shapes your overarching financial plan developed by our fee-only fiduciary CERTIFIED FINANCIAL PLANNER™. We make decisions based on your investment risk tolerance and detailed financial models of your unique financial situation. Instead of creating initial projections and assuming they will play out as expected, we provide comprehensive financial planning highlighted by active investment management that helps you build wealth in both bull and bear markets. 

 

Ready to measure your current risk tolerance? Financial planning in Akron-Canton, OH, with McGervey Wealth Management, considers all aspects of your financial life!

 

Defining Investment Risk Tolerance

Investors who are tolerant of risk are willing to take high-stakes chances with their investment dollars. Alternatively, those who are not risk tolerant are unwilling to take many chances or any at all with their money.  

Most people are between investment risk tolerance extremes, meaning they are willing to take some chances for their investing dollars to outpace inflation. Yet, they don’t want to take risks to the point that their hard-earned financial nest egg has the potential to decrease in the years and decades ahead.

Take a moment to think about how much of a financial loss you are psychologically and financially prepared to withstand when an investment doesn’t work out as anticipated. You are a risk-tolerant investor if you have enough intestinal fortitude, savings, and time remaining in the workforce to stomach a sizable loss for a lengthy period. 

Alternatively, if the prospect of a significant investment loss that takes years to recuperate or one that never leads to recovery causes you to lose sleep at night, you have a comparably low investment risk tolerance. If you are nearing retirement or don’t have much of a nest egg, such a sizable loss will be disruptive to the point that you are better off investing in securities that have a lower risk.  

Meet with our CFP® to discuss risk tolerance, time horizon, and different investment vehicles. We will develop a comprehensive financial plan that considers these items and your financial goals. 

When planning your financial roadmap to success, all decisions made on your behalf are shaped by your financial best interests. Unlike other financial planners, we do not make money through commission-based investment products and services. Instead, our fiduciary financial advisors charge a flat rate to prevent the potential for a conflict of interest. 

The Investment Portfolio That is Right for You

Investment risk tolerance is of the utmost importance in financial planning as it shapes your investment portfolio. We will actively manage your money through full-cycle investing.

Meet with us, tell us about your comfort level with volatility, and your timeline for retirement. Our team will use the information you provide to develop a comprehensive financial plan uniquely tailored to you.

 

Read: Do Geopolitical Events Impact My Comprehensive Financial Plan? You might be surprised.

 

Conservative, Moderate, and Aggressive Approaches

Older individuals with less than a decade remaining in the workforce are inclined to invest in conservative investment vehicles as their tolerance for risk is comparably low. There is no sense investing in high-risk securities when retirement is ten, five, or only a couple of years away.  

If you are in such a position or simply do not want to roll the dice with moderate or high-risk securities, our in-house investment manager will help you select the optimal low-risk investment vehicles. Low-risk investments include bonds, CDs, money market accounts, mutual funds, and even some ETFs.  

Moderate Investment Risk Tolerance

Those who have decades remaining in the workforce can afford to take more risks with their money. Even if you aren’t willing to embrace the elevated risk presented by stock ownership, you can take a more moderate approach that expands your financial nest egg while gradually reducing risk in the years ahead.  

It is in your interest to be more aggressive with investments during your younger years, as a potentially significant market decline won’t nearly impact your finances in the bigger picture. A combination of stocks and bonds usually characterizes such a moderate risk tolerance.

High Investment Risk Tolerance

Those who are relatively new to the workforce and have an appetite for risk are encouraged to adopt a high-risk tolerance approach as crafted by our investment advisors. We will help you select the optimal blend of stocks, mutual funds, ETFs, and some moderate and low-risk securities, just in case the market tanks. 

Again, our planners will actively manage your investments on your behalf based on your tolerance for investment risk today and across posterity—it does change.

When in Doubt, Lean Toward Moderate or Low Risk Investments

Plenty of hardworking investors are unsure whether it is wise to have a low, moderate, or high investment risk tolerance as the future of the stock market/economy is unknown. Instead of going for the gusto with a high-risk investing approach characterized by a large percentage of investing dollars placed in stocks, it is almost always better to take the safe route.  

The worst thing you can do as an investor is to view risk lightheartedly, assuming it doesn’t pose much of a threat to your financial nest egg. As is often said, slow and steady wins the race. This adage has the potential to prove true in the context of investing.

Though the stock market has a bullish long-term trend, there will be significant undulations, including some troughs resulting from the natural fluctuation of the business cycle. There is no sense jeopardizing your hard-earned money by putting most or all of it in high-risk stocks when our experienced financial professionals are here to tailor a balanced approach that helps you achieve your wealth goals. 

 

Are you retirement planning? Get a risk assessment second opinion with our Akron-Canton investment management team to double-check the protection of your assets!

 

We look forward to providing you and your family with holistic, comprehensive financial planning to safeguard your portfolio. A detail-oriented financial advisor in Canton, Ohio, can help you create a brighter financial future. Make sure we are a good fit for you based on who we serve.

Let’s work together to achieve your ideal retirement. Schedule a meeting with us today and download our helpful, complimentary eBook!

McGervey Wealth Management eBook

More About the Author: Michael McGervey

Michael serves as a resource to executives and business owners, assisting them in making proactive and informed personal financial decisions. He is also a member of McGervey Wealth Management’s Investment Committee and is responsible for investment research as well as the execution of the firm’s portfolio strategies.