Evaluating Risk – How to Make Decisions

With all the types of risk in the marketplace, the question becomes:  Where does one look to get information to help evaluate risk before making an informed investment choice?

Basically, there are two research categories – proprietary and nonproprietary.

Proprietary information, for example, would include that issued by a company, such as annual and quarterly reports, or data on the company’s website.  The prospectus for a mutual fund would also be proprietary information.

Several Types of Investment Risk

The term “market risk” is often heard in discussions regarding investments.  It simply is recognition that an investment may actually lose value because of various factors – economic, political, or other – in the financial marketplace.

Let’s take a look at a few of these risk factors that need to be considered when building a portfolio:

Investment Risk and Price Volatility: Steady Freddy vs. Jekyll and Hyde

Financial planners often talk about a risky investment or a conservative investment, but sometimes we need to stop and define these terms.

A risky investment is one in which, historically, the day-to-day price volatility has been high.  A more conservative investment would be one in which the range between the highs and lows is much more narrow. 

Assessing a Client’s Risk Tolerance

By accurately predicting a client’s risk tolerance  -- and, therefore, their investment behavior – we can design a portfolio strategy with more confidence that our client will stick with it over the course of the plan.  

To begin, we hold conversations with clients.  We also know that a variety of questionnaires available to help in this assessment.

Investment Risk - What It Is, How to Cope

“Risk” may be an inherently worrisome word, yet it is a key factor to consider when building a portfolio designed to meet one’s objectives.  Our next several blogs will define risk in several of its varied forms, and discuss strategies to address it.

Risk Tolerance vs. Risk Capacity

An initial challenge in addressing risk in a client’s portfolio is the simple fact that “risk” is not very well defined, and it presents itself in several forms.

Additional Keys to More Successful Investing

In addition to long-term compounding and riding out market volatility, which I talked about in my last blog, there are a few more strategies that may help you reach your objective of maximizing gains and minimizing losses.

Asset allocation

Asset allocation means spreading one’s dollars over several categories of investments, known as asset classes.   Among the most common are stocks, bonds, and cash. 

Keys to More Successful Investing

The basic objective of an investment portfolio is to maximize gains and minimize losses, and some key strategies and tactics exist that may help do just that. 

Long-term Compounding

The A, R, and T of an Investment Portfolio SMART Goal

A successful investment portfolio begins with SMART goals – objectives that are Specific, Measurable, Attainable, Realistic, and Time-Bound.

Our last blog noted that the more specific the goal, the easier it is to measure whether it has been achieved.

Specificity is a highly important factor in sound portfolio goals, but those goals would have little chance of being accomplished if they were not also attainable and realistic.   These latter two attributes go hand-in-hand and must be acknowledged at the outset of the goal-setting process. 

A Sound Investment Portfolio Starts with S.M.A.R.T Goals

Virtually all clients who work with us at Thorley Wealth Management to develop investment portfolios have three common objectives.  In simple terms, they want to make money, not lose their principal, and not pay an undue amount of taxes. 

Record Retention: What Records Do You Need to Keep?

We all have various documents and records that are too important to keep in an ordinary file drawer.   These might be for tax, insurance or investment purposes, and we understand the need to retain them in a safe and secure place. The question arises, however, as to just how long we need to hold on to these records.  We recommend designating the documents in one of three categories:  short term (1-3 years), medium term (6-7 years) and long term (indefinitely).