How Much Portfolio Risk Is Right For Me?



Have you ever really tried to determine what your real risk tolerance is when it comes to investing? Most people by nature will tell you that they are not afraid of risk. They will tell you that they don’t mind that things will go up and down in value. That is, of course, until those investments actually start going down. It’s only when the monthly statements are down, your real estate is down, or some private equity deal is going down the tank that you can really determine your threshold for risk. With all of the uncertainty with the economy today, maybe it’s time to determine again just how risky are you?

The amount of risk you take with your investments should be directly proportional to how much time you have to let the investments sit and work for you. We have always used the analogy of a swimming pool to discuss risk with clients. Most community or neighborhood swimming pools have a baby pool and a main pool swimming area. The baby pool is typically only 6 inches to a foot deep. The main swimming pool usually starts out with an area that is 1 to 3 feet deep, moves to the middle part that slopes down from 4 to 7 feet deep, and then the deep end, which is typically 7 to 10 feet deep. If each foot represented one year of time that your money was to be invested, you could translate how many years you need to stay in a particular investment to warrant the risk you will take with the investment.

Here’s how it works. If you have 6 months to 1 year for a financial goal, you really can’t take that much risk and probably belong in the baby pool. These may be investments such as savings accounts, money market account, or short term CD’s. If you have 1 to 3 years to a financial objective, you can take a little bit more risk and use things like longer term CD’s, short-term bonds, etc. As you move through the pool, if your goal is 4 to 7 years away, this may be the first time you can consider intermediate type bonds or the stock market if you have more than five years. Last, if you have 7 to 10 years to a goal you can begin to look at more aggressive investments such as emerging markets, technology, or longer-term real estate investments. The big mistake most people make is to choose investments that are not suitable for their particular time frame to a financial goal. This is why people who invest in the stock market for a goal only one year away can be taking on abnormally high and undue risk.


This material is for general information and education purposes only.  Information is based on data gathered from what we believe are reliable sources.  It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.  It should also not be construed as advice meeting the particular investment needs of nay investor.

Links to third-party web sites are provided as a convenience.  Provident Wealth Advisors, LLC does not endorse nor support the content of third-party sites. By clicking on a third-party link, you will leave this website where privacy and security policies my differ from those practiced by Provident Wealth Advisors, LLC.

  • Facebook Social Icon
  • LinkedIn Social Icon
  • YouTube Social  Icon
Contacts:

Copyright 2018 Provident Wealth Advisors, LLC

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Provident Wealth Advisors, and our editorial staff. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual adviser prior to implementation.
 

Fee based financial planning and investment advisory services are offered by Provident Wealth Advisors, a Registered Investment Advisor in the State of Texas. Insurance products and services are offered through Goodwin Financial Group . Provident Wealth Advisors, and Goodwin Financial Group are affiliated companies.
 

The presence of this web site shall in no way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any residents of any State other than the State of Texas or where otherwise legally permitted. This site is published for residents of the United Sates only.  Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined.  Not all services referenced on this site are available in every state and through every advisor listed.  For additional information, please contact us at 281.466.4843.

Provident Wealth Advisors, LLC does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.

ADV - 2A                                                Provident1031.com is a Division of Provident Wealth Advisors, LLC.                                               Privacy Policy

Provident Wealth Advisors

25511 Budde Road

Suite 1002  The Caroline Building

The Woodlands, TX 77380

281.466.4843
281.466.4817

Info@providentwealthllc.com