There is no one way, no 'right answer' when it comes to investing. But there are some important things to know and risk tolerance is key.

Your risk tolerance- Gauged generally with a questionnaire, risk tolerance measures how you would feel in the ups and downs of stock market movement. Generally we all want our money to go up, but are less inclined to have it go down. Risk tolerance is not an exact science. There is no Vulcan Mind-meld that can ascertain your tolerance. Generally, your risk tolerance helps compile what mix of investment types you might hold, what your 'portfolio' might be, all stocks, all bonds or a mix of stock and bonds. And depending who you ask there are just a few, or many categories. As I said, this is not an exact science.


What is risk?- In life risk is the possibility that things will go wrong. In finance risk is the possibility things will go wrong and negatively affect your investments. As you may have realized, life has no guarantees. So the more you learn and experience your risk tolerance may change.

Even with fear or optimism, you sometimes have flexibility in your risk tolerance. You can take some more risk and be within your tolerance, when you feel more comfortable with the investment, the holdings, the companies in which you are investing. You have more capacity for risk- meaning being able to accept more or less risk- when you are investing in things you understand more than just when you have a vague idea of something called the 'stock market.'


For instance if you understood one mutual fund held companies that manufacture and distribute cat food, ice cream, or held companies that own chain coffee shops and other companies providing products or services that are explained to you and that you perhaps frequented, you may find that you have the risk capacity to invest in such a fund.

Educate yourself- One study by Fidelity investments found that younger investors were as conservative as their Baby Boomer counterparts. because they all considered themselves 'beginner investors.' A spokesperson for Fidelity states in the same survey that 'time is one of the biggest factors when determining assets allocation.' I don't know that I agree that time is the biggest factor in asset allocation. I think it's an obviously important factor. But I think your risk tolerance is more a part of who you are as an individual and that time, your goals and personal circumstances all add in to tweak that basic risk tolerance.

Certain times in your life your personal circumstances may change so that you feel more risk averse or more open to risk. Remember, that this is not an exact science.

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Marion Syversen, MBA
NorumbegaFinancial
207.862.2952
Marion@NorumbegaFinancial.com
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