What Type of Risk Are You Taking?

When the markets are consistently doing well, we often don’t think as much about risk tolerance as we do when the markets are choppy as they have been lately.

 Risk is a two-way street--it can spell opportunity and potentially yield increased gains, but it can also lead to increased losses. Your level of willingness to tolerate these potential losses and large market swings is your risk tolerance. 

 One determinant of your risk tolerance is your comfort with uncertainty. Are you the type of person that needs to have a plan for every aspect of your life? Or do you enjoy life’s unknowns? How does the possibility of financial loss make you feel? Looking at your reactions to previous downturns can also be instructive:

·           Did you begin to sell your investments during the decline? Did you want to liquidate stocks? If you are in this camp, you may have a conservative risk tolerance.

·           At the other end of the spectrum, were you eyeballing the uncertainty as a potential opportunity? Were you looking to buy? If that’s you, you may have an aggressive risk tolerance.

·           If you find yourself somewhere in the middle of these two extremes, you may have a moderate risk tolerance.

 Once you understand your risk tolerance, you can take that information, along with other factors such as your investment objectives, current and anticipated future income, age, and investment time horizon to see if adjustments to your portfolio are necessary.

 If you have questions about your portfolio or risk tolerance, feel free to contact us at 716-445-7465 or email info@buffalofirstllc.com.