Last week we took the initial steps in developing an investment strategy. Did you write them down? Putting things in writing (goals, promises, commitments) adds a dimension, a connection to the universe that helps propel you forward.
As you build your strategy here are some steps to follow:
1. State your investment goals and objectives clearly.
(some goals might be retirement, new home, kids education, second home, world travel, build wealth.)
2. Determine your time horizon.
(next year, in five years, 10 years? Time helps gauge the amount of risk.)
For multiple goals you may have multiple time frames.
3. Describe your return expectations.
(low risk = low return, high risk brings higher potential for both gain/loss.)
4. Detail the level of risk you are willing to take.
(I call this the "sleep factor" - how much money must I keep absolutely safe in order to sleep at night. Set that money aside in safe investments: CD's, U.S. Treasuries, stable value funds, and invest the rest accordingly.)
5. Assess your liquidity needs.
(how much cash must you be able to get at any given time.)
This keeps you from selling investments at the wrong time.
6. Decide who will monitor your portfolio?
(you, a broker, a money manager?)
7. Include a schedule for rebalancing your asset allocation ( mixture of stocks, bonds, cash, alternatives) - quarterly, annually?
Each component will grow at a different rate; rebalancing brings them back to your original proportions.
Be $ Smart - follow the steps, write them down, create your strategy, build your wealth.
Next time we will view a sample investment strategy.
Showing posts with label high risk. Show all posts
Showing posts with label high risk. Show all posts
Friday, February 26, 2016
Saturday, November 1, 2014
Risk Tolerance
Risk - the permanent loss of capital (money).
Over the past few weeks we have experienced much volatility in U.S. stock markets.
Volatility is the gyrations of stock prices in reaction to social and economic conditions. With the market moving up and down - making money and losing money - how do you protect your money and your future?
How much money can you bear to lose? NONE - most would say.
If we ask the question slightly differently - how much money must you keep absolutely safe to allow you to sleep at night? Your answer may show how much risk you are willing to take. Some may say 100% - then you would be considered risk adverse.
Others may say 20%; they would be considered to have a low risk tolerance.
But none of us likes to lose money. So how do I know where to put my money?
Money needed soon (1-2 yrs.) for a definite goal - a house down payment, a new car, an upcoming vacation - all must remain safe with little or no risk. The safe places to keep this money are:
savings accounts,
CD's (certificates of deposit at a bank)
most money markets.
You have NO risk tolerance for this money.
Money slated for mid-term goals (3-8 yrs.) - an Alaskan cruise in 5 years, college tuition for your ten-year old, a vacation house in 4 years - may earn slightly more interest if invested in short-term bond funds or certain high quality (blue chip) stocks.
You have small risk tolerance for these goals.
Money designated for retirement - 15, 20, 30 years away need greater exposure to risk to provide the growth necessary to build a sufficient nest egg. Here is where investing in stocks and bonds gives you growth opportunity but also increases loss possibility.
You have moderate risk tolerance for long term goals.
Extra money, over and above all your savings, may be allocated to higher risk.
This is not the rent or mortgage money. This is money you can afford to lose.
Real estate, commodities (e.g.metals, oil, coffee, grains) fluctuate wildly(high volatility)
You have high risk for these investments.
Be $ Smart - know your risk tolerance. Invest wisely so you may sleep well.
Over the past few weeks we have experienced much volatility in U.S. stock markets.
Volatility is the gyrations of stock prices in reaction to social and economic conditions. With the market moving up and down - making money and losing money - how do you protect your money and your future?
How much money can you bear to lose? NONE - most would say.
If we ask the question slightly differently - how much money must you keep absolutely safe to allow you to sleep at night? Your answer may show how much risk you are willing to take. Some may say 100% - then you would be considered risk adverse.
Others may say 20%; they would be considered to have a low risk tolerance.
But none of us likes to lose money. So how do I know where to put my money?
Money needed soon (1-2 yrs.) for a definite goal - a house down payment, a new car, an upcoming vacation - all must remain safe with little or no risk. The safe places to keep this money are:
savings accounts,
CD's (certificates of deposit at a bank)
most money markets.
You have NO risk tolerance for this money.
Money slated for mid-term goals (3-8 yrs.) - an Alaskan cruise in 5 years, college tuition for your ten-year old, a vacation house in 4 years - may earn slightly more interest if invested in short-term bond funds or certain high quality (blue chip) stocks.
You have small risk tolerance for these goals.
Money designated for retirement - 15, 20, 30 years away need greater exposure to risk to provide the growth necessary to build a sufficient nest egg. Here is where investing in stocks and bonds gives you growth opportunity but also increases loss possibility.
You have moderate risk tolerance for long term goals.
Extra money, over and above all your savings, may be allocated to higher risk.
This is not the rent or mortgage money. This is money you can afford to lose.
Real estate, commodities (e.g.metals, oil, coffee, grains) fluctuate wildly(high volatility)
You have high risk for these investments.
Be $ Smart - know your risk tolerance. Invest wisely so you may sleep well.
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