Know Your Tolerance for Short-Term Risk
For most investors who have a long-term investment objective in mind, accepting some level of short-term risk comes as a natural part of the investment process. The question is, how much risk can you accept and still sleep comfortably at night?
Here are three basic questions to ask yourself in order to score your ability to tolerate short-term risk:
How stable is my income? Your current income includes salary, wages, trust income or commissions. Future income includes IRA, 401K and pension withdraws.
1). Very reliable
2). Somewhat stable
3). Unstable or Unknown
How quickly do I plan to spend money from my investments?
1). Longer than 10 years
2). From three to ten years
3). Less than three years
Which statement comes closest to your honest feelings about your investments over the next three years?
1). I can handle a small loss
2). I need to see some return on my investment
3). It would be difficult for me to tolerate any loss.
Now add up the sum of each question you answered and compare to the rankings below:
Total Score 8+: Consider yourself a Very Conservative short-term investor. Your main objective would be to preserve the value of your investments while providing some income.
Score 4 to 7: Moderate. Appropriate for those who can tolerate moderate fluctuations, reflected as either short-term gains or short-term losses, in the value of their portfolio value.
Score 3: You may be a Moderately Aggressive short-term investor able to withstand greater changes in portfolio value, with the expectation of greater long-term returns.
Determining your short-term risk tolerance should not be used as the sole basis for evaluating your long-term investment objectives. As with all things financial, it’s complicated. If you’d like a more in-depth evaluation, at no obligation, please call (760) 282-8015 or Contact Us.