Wednesday, Dec. 18, 2019
Dakota: We are joined again by Private Wealth Advisor Will Rogers to talk about how much risk you should take with your investments.
Will, what are the main types of risk people should manage in their portfolios?
Will: Business Industry Inflation Interest rate Geopolitical Market
Dakota: Should you avoid all risk?
Will: You might want to, but it’s not possible. For example, if you avoid market risk by investing in cash or bonds, you’re now exposed to inflation and interest rate risk. It’s much better to identify how much risk you can tolerate, and then manage the risks in your portfolio using prudent risk reduction techniques. Generally this involves intentionally having a combination of offsetting risks in different investments that together provide for an overall level of risk you are comfortable with.
Dakota: You mentioned Risk Tolerance – how do you determine this?
***Graphic “Know your Risk Tolerance”
Will: There are many questionnaires that can help determine if your more conservative, moderate or aggressive. Essentially they try to balance two fears: FOMO and FOLA.
Many of your viewers may recognize the FOMO acronym for “Fear Of Missing Out.” In investments it’s wanting to keep up with the “high returns” you may think others are earning. The other side of that coin is FOLA - the “Fear Of Losing All” It’s very rare that an entire portfolio could be lost, but it’s possible. A good way to verify your own risk tolerance is to look at your portfolio value, and then imagine it dropping in value during a market swing. As you imagine it dropping in value there is likely a dollar amount that you would recognize as “too much” and you would likely get out of the investment if it lost that much or more – essentially give up on it. That drop is likely your true risk tolerance.
Dakota: So why is this important for your wealth?
Will: Understanding how you are likely to respond to changing market conditions makes you better equipped to avoid counter-productive, emotionally driven short-term decisions. By honestly assessing your risk tolerance level, you are less likely to abandon a thoughtful investment plan during a market selloff, or to take on excessive risk during a bull market. You should seek to build an investment portfolio that is designed to work for you over the long run, with only minor adjustments from time to time
Dakota: What are the prudent ways to manage risk?
Will: Diversify wisely Focus on the long term Rebalance Regularly
Dakota. Good advice - For more information, check out Will’s website at www.WRogers.info