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Risk is a normal part of investing – but it’s important to ensure you’re not taking on unnecessary risk. You’ll want to determine what level of risk you’re comfortable accepting and then balance it with the required risk necessary to achieve your long-term goals.
Typically, what prevents most investors from reaching their goals is not market volatility itself, but rather their reaction to it. Understanding your comfort level with risk can help you avoid some emotional investing mistakes, such as chasing performance. By knowing your risk tolerance, you can better stick to your long-term strategy during the inevitable market downturns along the way.
In addition, sometimes there is a gap between how much risk you’re comfortable taking and how much you may need to take to achieve your goals. This is where you may need to make some important decisions. Your financial advisor can help you build a portfolio that balances your risk tolerance, risk capacity and required risk in order to achieve your financial goals.