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What is your predilection for risk? Here's how to find out
Q I’m about to start investing a sizeable chunk of money in a portfolio of different stocks, bonds, and ETFs. How important is understanding my risk tolerance in choosing the right investments? — Francis
A Knowing your risk tolerance along with what is suitable for you has always been very important in all aspects of our lives. From how we dress, to the activities we participate in, and ultimately, to how we invest. Bankers are known for their dark suits and red ties to convey power. Skateboarders in the same attire would be entertaining, to say the least along with making their stunts much more difficult and dangerous to execute in their wing tip oxfords. So it’s easy to see in everyday life how if we get suitability wrong, we can bring in unnecessary risk.
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When we think about suitability in what we buy for investments it can be far more challenging than for the bankers figuring out why his baggy shorts won’t fly at the next meeting. A prospectus and offering memorandum are built for lawyers, not laymen. Which is likely why they are so fun to read.
Getting your suitability wrong can work for you or against you. Whether you are working with an adviser, or on your own, it will be subjective to what you or the adviser’s knowledge is across multiple investment types and strategies. You can’t try it on and get your partner to give you an opinion or check yourself out in the mirror.Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
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