By: Perry Grice
Before embarking on an investment strategy, it is imperative that you first determine your personal tolerance for risk. Generally speaking, with greater risk comes greater volatility.
When determining your tolerance for risk, you must consider your age, investment time horizon, present and future financial condition, and your long-term investment goals. Also, your emotional tolerance for risk can be an important factor in determining your tolerance for risk. Even though your financial situation may allow for a higher level of risk, your peace of mind may dictate a less risky investment plan.
Investors are often summarized into three risk categories. Conservative investors could limit their exposure to risk by concentrating on high-quality and high-rated fixed income investments. A moderate investor may opt to invest in growth stocks, mutual funds, and bonds. Taking greater risks, an aggressive investor may invest in vehicles that have greater price fluctuation. Most investors may find that they don’t necessarily fall into one of these exact categories, but could toggle between the three.
There are ways to reduce risk in your investment strategy. Asset allocation, which is the process of deciding what percentage of your money to put into three major asset classes: stocks, bonds, and cash, and extending your time horizon are two ways to reduce your exposure to risk. While asset allocation does not ensure a profit and may not protect against loss, it can play a key role in establishing a successful investment strategy and reducing risk.
For assistance in developing strategies suited to your personal tolerance for risk, contact your investment professional today.
Article provided by Michael P. “Perry” Grice, an Associate Vice President/Investments with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, who can be contacted in the Florence office at (843) 665-7599.