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Assessing Risk Tolerance

Post on: 16 Март, 2015 No Comment

Re-assess risk tolerance, asset allocation & diversification

The foundation of your investing strategy is your comfort with risk.
Most people’s risk tolerance is lowest when they are in retirement.
Adjust asset allocation to deliver both income and potential growth.
Spread your money across different investments in each asset class.

In retirement

As your focus shifts from saving to generating income from your savings, you’ll want to re-assess your comfort with risk, adjust the mix of assets in your portfolio and select a range of investments in different asset classes.

Re-assessing your risk tolerance

Once you shift from saving for retirement to drawing on your savings, your comfort with risk may be lower than it was during your working life. However tempting it may be to avoid risk completely, you still need to have some assets in growth-oriented investments so your money has the opportunity to potentially grow faster than inflation and to last throughout retirement.

To determine tolerance for risk, Ameriprise financial advisors ask investors to answer five questions .

What are your goals for your investments?

To grow aggressively
To grow significantly
To grow moderately
To grow with caution
To avoid losing money

Assuming normal market conditions, what would you expect from your investments over time?

To generally keep pace with the stock market

To slightly trail the stock market, but make a good profit

To trail the stock market, but make a moderate profit

To have less volatility, but make modest profits

To limit fluctuations, but make small profits

Suppose the stock market performs unusually poorly over the next decade, what would you expect from your investments?

To lose money

To make very little or nothing

To eke out a little gain

To make a modest gain

To be little affected

Which of these statements would best describe your attitude about the next three years’ performance of your investments?

I don’t mind if I lose money

I can tolerate a loss

I can tolerate a small loss

I’d have a hard time tolerating any losses

I need to see at least a little return

Which of these statements would best describe your attitude about the next three months’ performance of your investments?

Who cares? One calendar quarter means nothing

I wouldn’t worry about losses in that time frame

If I suffered a loss of greater than 10%, I’d be concerned

I can only tolerate small short-term losses

I’d have a hard time stomaching any losses

Most investors fall into one of the following categories

Conservative

You are willing to accept the lowest return potential, lowest return variability and the lowest fluctuation in account value in exchange for lower risk.

Moderately conservative