If you’re new to making investments or your life has changed (maybe you used to be a young, single hotshot who wasn’t afraid of taking risks and now you’re a parent saving for a home), certain investments can be scarier than others. However, determining what your risk tolerance level may be is crucial for preventing you from losing it (and yes, we do mean mentally AND monetarily!). Our financial advisors are here to help make things less spooky, so here are five things you should consider before taking a financial risk.
Don’t Get Spooked by Age, but Be Aware of It
Getting older changes many things, and just as people get less rambunctious with their daily activities (yeah, it’s painful for us to sit crisscross applesauce now, too), your age should be a big consideration when it comes to your risk tolerance. For example, if you’re in your 30s, the time you have to increase your income and end up on the other side of a volatile market is greater than someone in their 80s. This means that you can be more aggressive with investments, whereas someone in their 80s should play it a bit safer.
Dust the Cobwebs Off Your Goals
Healthy eating habits, career moves, lifestyle changes—we all have different goals we set for ourselves and your financial planning is no different! In order to truly know how much of an investment risk you’re willing to take, it’s important to determine your financial goals. IE:
When would you like to retire?
What kind of lifestyle do you want to have during retirement?
Do you want to buy a home soon?
Do you want to start saving for your family’s future?
· Would you like to pay off debts, such as college loans, car loans, credit card balances, etc.?
Once you figure out what your financial goals are, you’ll have an easier time deciding if you want to invest aggressively or more conservatively.
A Skeletal Portfolio vs. A Booming Portfolio
Like most things in life, taking a risk—whether it be flipping a home, starting a business, or making an investment—are all less risky when you have a lot of money at your disposal. For example, if your financial portfolio adds up to $100,000, you’re going to experience a greater risk with an investment than someone whose financial portfolio adds up to $1,000,000. However, making investments is one way to grow your portfolio—that’s why it’s best to meet with a wealth management team who can help increase your money in a smart and effective way.
Don’t Let Your Timeline Play Tricks on You
Timelines can be a tricky thing to figure out, because like with most things in life, even when you set a goal date for a life event (buying a home, starting a family, opening a business), timelines can change. With that being said, coming up with a long-term plan and estimating when you’d like to make big purchases or life changes will help when figuring out your risk tolerance. For instance, if the timeline you create shows that you’ll need a large amount of money for a purchase you want to make in five years, it’s best to avoid investing in a risky stock anytime soon.
Enjoy the Treats of Determining Your Risk Tolerance Level
Taking the time now to figure out your risk tolerance level can help save you a lot of stress down the road—but this doesn’t mean you can’t make investments! It just means that you’re going to want to rely on the expertise of your financial advisors and heed their investment advice that’s specific to you, your life, and your goals. If you don’t, and you go through with a high-risk investment, you may find yourself facing a very scary reality if the market crashes.
Whether you need help determining your risk tolerance level or making investments, our financial advisors at Creative Financial Planning are here to help! Contact us today to schedule a FREE financial review with our wealth management experts.