How Risky Are You?

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How Risky Are You?

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June 13, 2011

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. Over my career, I 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 undue risk.

There are all sorts of tools that the internet and financial companies have to help you determine your overall risk tolerance. With the last 10 years of some major ups and downs within investment portfolios, it may be time to revisit the risk you take for the future years to come!

Written by:

Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc

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Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS. NFPAS does not provide tax or legal advice. This site is published for residents of the United States only. Registered Representatives and Investment Advisor Representatives of NFP Advisor Services, LLC (NFPAS) 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. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact NFPAS Compliance Department at 512-697-6000. PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. NFP Advisor Services, LLC makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is NFP Advisor Services, LLC liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. https://Bit.ly/KF-Disclosures

This site is published for residents of the United States only. Registered Representatives of Kestra IS and Investment Advisor Representatives of Kestra AS 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. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact Kestra IS Compliance Department at 844-553-7872.

PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. Kestra IS and Kestra AS makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is Kestra IS and Kestra AS liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.