Tip for Investors: Why You Should Evaluate Your Risk Tolerance and Risk Capacity

Written by MaryPat Peeples on July 3, 2019

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There are two things to consider when it comes to risk and reaching your financial goals: how much risk you are willing to take and how much risk you need to take. The first of these considerations is called “risk tolerance,” and it should be determined with a few variables in mind, such as retirement time horizon and future goals for which you will need to fund from your investments. A good way to determine your risk tolerance is to work with your financial advisor who will be able to help you determine your best risk level dependent on your individual needs and goals.

The second of these considerations is called “risk capacity,” which is the amount of risk you are able to take based on measurables, such as the amount of money you are working with in your portfolio. Ignoring risk tolerance or risk capacity and simply taking the maximum or the minimum amount of risk in your portfolio could be a factor that causes you unnecessary stress. Talk to your financial advisor to determine both your risk tolerance and risk capacity and secure your financial plan.

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