Insights + Resources

Managing Risk in Your Portfolio

Oct 28, 2019

Finance Game
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” –Warren Buffett

Risk is a factor in any investment decision that you make. Your tolerance for risk is something that you will want to consider when you make decisions alongside your trusted financial advisor in Charlotte NC. Your risk tolerance is balanced against your time horizon, meaning the time between now and your anticipated retirement date.

But is it possible to avoid a loss? No, not completely, but you can take steps to manage that risk when investing. This is where conversations about your risk tolerance are critical.

What would you rather have, $500 right now or a 50% chance at $2,000? Many people go for the $2,000 and rightfully so. Since you have a 50/50 chance, a decision tree shows the $2,000 answer carries a potential value of $1,000.

But let’s add a few zeros and see if that changes your perspective.

What would you rather have, $50,000 right now or a 50% chance at $200,000? The decision tree says the opportunity to win $200,000 has the highest potential value. But in reality, many people second-guess that decision because $50,000 is a lot of money.

Remember, there is no correct answer to the questions. They simply help you better understand the concept of risk.

Investment risk can be managed, but it can’t be eliminated entirely. All investments carry some level of risk. And in general, the greater the risk an investment carries, the higher its potential return.

Risk happens, but it doesn’t have to get in the way of your dreams. If you have concerns about risks you may be facing, either now or in the future, ask your trusted financial professional for guidance about the strategies presented here. Together, you can get clear about the retirement you want and the aspirations you hope to realize in the future.

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