Important Note

You are now leaving the Strong Valley Wealth & Pension, LLC ("Strong Valley") website. By clicking on the "Schwab Alliance Access" link below you will be entering the Charles Schwab & Co., Inc. (“Schwab”) Website. Schwab is a registered broker-dealer, and is not affiliated with Strong Valley or any advisor(s) whose name(s) appears on this Website. Strong Valley is/are independently owned and operated. Schwab neither endorses nor recommends Strong Valley. Regardless of any referral or recommendation, Schwab does not endorse or recommend the investment strategy of any advisor. Schwab has agreements with Strong Valley under which Schwab provides Strong Valley with services related to your account. Schwab does not review the Strong Valley website(s), and makes no representation regarding the content of the Website(s). The information contained in the Strong Valley website should not be considered to be either a recommendation by Schwab or a solicitation of any offer to purchase or sell any securities.

Article

Tired of Tossing and Turning?

Know your Risk Tolerance number.

Know your Risk Tolerance number. It's a quantitative way to pinpoint how much risk you want, how much risk you currently have in your portfolio, and how much risk you need to take to reach your goals. Understanding your risk tolerance can help guide your investment decisions and help you sleep more soundly at night.

August 4, 2023
Know your Risk Tolerance number.
Important Disclosure: Content on our website and in our newsletters is for informational purposes only. The information provided may (or may not) directly apply to your situation. We recommend that readers work directly with a professional advisor when making decisions in the context of their specific situation.

Risk tolerance is a highly individual matter. A portfolio that keeps one investor awake at night may let another sleep soundly. However, investors must be willing to accept a certain risk level to receive investment returns in the form of interest or capital gains.

All investments carry a tradeoff between risk and return—generally, the higher the risk, the higher the potential return—or loss. Conversely, the lower the risk, the lower the potential return or loss. The goal is to find the right level of risk that provides the returns you need, while letting you get a good night’s rest.

Temperament, age, stage in life, investment experience, financial goals, and time horizons are all factors that affect one’s risk tolerance. Following is a brief discussion of some of these points to help you assess your own personal risk tolerance:

Know Your Risk Tolerance

  • Temperament. Not everyone is comfortable taking financial risks. Just because someone is a weekend extreme rock climber doesn’t necessarily mean that this risk-taking behavior extends to his or her finances. When selecting investments, it is important to bear in mind that different types carry different degrees of risk, and also that returns for specific investment types may vary over time. For instance, stock market returns that have historically risen over the long term have experienced wide short-run fluctuations. Looking back at the historic 1973–1975 recession, the stock market dropped by 46%. Ask yourself: “How well would I have weathered that loss?”
  • Age and Stage in Life. Single investors may be able to carry more risk than married couples with children. Individuals just embarking on their careers and building wealth can usually take on more risk than those nearing, or already in, retirement.
  • Investment Experience. Sophisticated investors, who understand capital markets and are knowledgeable about specific investments, can typically assume more risk than novices.
  • Financial Goals and Time Horizons. Another consideration is the amount of time you have to meet your financial goals—that is, your time horizon. For example, if you begin saving for retirement early, you can generally afford to assume a higher degree of risk. While it is not wise to take on more risk than you are comfortable with, remember that the amount of risk you are willing to carry may potentially affect the level of return you can expect.

Reassess Periodically

It is prudent to assess your risk tolerance before beginning an investment program. Then, reassess it periodically as you progress through life’s major stages, such as when starting a family, changing jobs, or approaching retirement. Understanding your risk tolerance can help guide your investment decisions, and help you sleep more soundly at night.

Follow up with a Strong Valley financial advisor to better understand the context of your unique goals and situation.

Other content you may like

  • Mid-Quarter Roundtable Highlights

    Podcast Highlight - Predictions for Inflation: Potential Pains and Gains

    November 30, 2022
    Inflation hasn’t gone away. An examination of true inflation helps the team explain why rising costs were a factor in the exit polls and how some costs are hitting harder than others. There may be relief on the horizon as they look at historical inflation and how it peaks.
    Read this Article
  • Summer Reminds Us to Be Flexible

    Summer Reminds Us to Be Flexible

    July 16, 2023
    No one knows what tomorrow will bring. Your financial plan must be adaptable too. You don’t just set it and forget it. So how does someone grasp a fast-changing world to formulate a job or career strategy, and an investment strategy to accumulate capital needed to fund their secure future?
    Read this Article
  • Historic Bear Market in Bonds

    Historic Bear Market in Bonds

    October 24, 2022
    As market volatility continues and the mid-term election draws rapidly near, this month’s Student of the Market gives insight into the relationship between midterm election years and market performance. You might be surprised to see the breakdown of U.S. stock sector performance for the last five Presidents. Also stats on performance following peaks in inflation and performance 12 months after bad starts for bonds/stocks, may bring some relief.
    Read this Article
  • Ranking the Best and Worst Presidents - Part I

    Ranking the Best and Worst Presidents – Part IV

    October 28, 2020
    Part IV of a series: Every four years, Washington D.C. and Wall Street converge as Americans elect a president and Wall Street tries to figure out what the outcome means for the stock and bond markets. And since so many hypotheses on this topic abound, it’s hard to keep track of them all. A new list includes a couple of recent presidents that you know much more about as well as the beginning of presidencies recording double-digit annual stock market returns.
    Read this Article
    • The link you have selected is located on another server. The linked site contains information that has been created, published, maintained, or otherwise posted by institutions or organizations independent of this organization. We do not endorse, approve, certify, or control any linked websites, their sponsors, or any of their policies, activities, products, or services. We do not assume responsibility for the accuracy, completeness, or timeliness of the information contained therein. Visitors to any linked websites should not use or rely on the information contained therein until they have consulted with an independent financial professional. Please click “Continue to Link” to leave this website and proceed to the selected site.
    No, stay on StrongValley.comContinue to link
    phone-handset