I have never been a fan of roller coasters; I consider them torture. Yet my older son can spend an entire day riding them - the higher, twistier, upside-down/inside-out, the better! But even he is not enjoying the volatile ride the markets have been taking these past few weeks and months.
Some folks view roller coasters as frightening.
Some find them exhilarating. How do you react to market volatility?
I will assume you have some money invested in the stock/bond/commodity markets. Maybe you have a 401k through work, an IRA or a 529 plan that holds a variety of funds.
Hold on tight, close your eyes, go for the ride!
1. DO NOT, repeat Do Not watch the TV constantly monitoring the daily market moves. We all know TV sensationalizes events.
2. Do Not check your accounts hourly, daily or weekly. This breeds dread, confusion and despair. Reviewing quarterly reports will suffice.
3. Take advantage of the opportunity to buy low if this is part of your investment strategy to increase certain positions. Yes, stocks may go a bit lower but they are way down from frothy highs. Remember "buy low, sell high".
4. Reassess your risk tolerance. Have you been anxious, upset and losing sleep these past few weeks? Perhaps you thought you could handle more risk. Or maybe you are closer to retirement or buying a house and feel the need to be more protective of your money. Give yourself some time before reallocating.
5. Hopefully you have an investment strategy, If so, stick with it. If not, now is not the time to implement one.
A good investment strategy will help you ride out the peaks and valleys of the market and provide guidance in achieving your financial goals.
In times like these it is helpful to remember, in order to generate the type of long-term returns that create wealth, you must accept a certain amount of risk. With that risk comes volatility. The key is not to take steps to avoid the risk altogether, but to manage the risk where possible.
Be $ Smart - Imagine the market as a living, breathing organism. It cannot inhale or exhale indefinitely. Have a plan to take advantage of market moves.
Showing posts with label risk tolerance. Show all posts
Showing posts with label risk tolerance. Show all posts
Monday, January 25, 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.
Full Service or Discount Broker
I was with some friends this weekend and one asked me "What is a discount broker?"
As I often encourage you to invest your money to help it grow, this might be a good time to explain the difference.
A full service broker is a firm like Merrill Lynch or Morgan Stanley. Here you will find a "broker" or sales person who may be called a Financial Advisor, Wealth Management Advisor or Retirement Specialist.
These large, full service firms will give you financial advice, help determine your financial goals and your risk tolerance. They typically have large research departments or purchase outside research on various companies' stocks and bonds. They use this research to recommend to their clients a mixture of investments (asset allocation) and will direct the buying and selling of these investments - usually for a substantial commission.
The commission charged is based on the price of the stock times the number of shares. The cost to buy or sell could be hundreds of dollars. This is how they get paid.
(Remember:
"What's this going to cost me? How do you get paid?" from a previous $ Tip.)
A discount broker is a firm with many of the same functions as above but without as many services. They will offer "canned" research, something anyone can find online. They will not call you recommending investments nor will they take pains to get to know you.
These firms are more "do it yourself". They assume you know what you are doing. They will take your order to buy or to sell and they will not offer comment.
Actually, the greater discount on buying and selling is when you talk to no one and enter the trade online. (A trade is a buy or a sell.)
There is one discount brokerage that charges $5 per trade for almost any size trade (50, 100, 1000 shares). Others may charge $7.50, $10 or $20 per trade. Scottrade, eTrade, Ameritrade are some discount brokerage firms.
Be $ Smart - know what type of brokerage firm is best for you to build wealth and financial security.
As I often encourage you to invest your money to help it grow, this might be a good time to explain the difference.
A full service broker is a firm like Merrill Lynch or Morgan Stanley. Here you will find a "broker" or sales person who may be called a Financial Advisor, Wealth Management Advisor or Retirement Specialist.
These large, full service firms will give you financial advice, help determine your financial goals and your risk tolerance. They typically have large research departments or purchase outside research on various companies' stocks and bonds. They use this research to recommend to their clients a mixture of investments (asset allocation) and will direct the buying and selling of these investments - usually for a substantial commission.
The commission charged is based on the price of the stock times the number of shares. The cost to buy or sell could be hundreds of dollars. This is how they get paid.
(Remember:
"What's this going to cost me? How do you get paid?" from a previous $ Tip.)
A discount broker is a firm with many of the same functions as above but without as many services. They will offer "canned" research, something anyone can find online. They will not call you recommending investments nor will they take pains to get to know you.
These firms are more "do it yourself". They assume you know what you are doing. They will take your order to buy or to sell and they will not offer comment.
Actually, the greater discount on buying and selling is when you talk to no one and enter the trade online. (A trade is a buy or a sell.)
There is one discount brokerage that charges $5 per trade for almost any size trade (50, 100, 1000 shares). Others may charge $7.50, $10 or $20 per trade. Scottrade, eTrade, Ameritrade are some discount brokerage firms.
Be $ Smart - know what type of brokerage firm is best for you to build wealth and financial security.
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