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Risk is a normal part of investing – in fact, some risk serves a valuable purpose. If you didn’t accept some risk while investing, there wouldn’t be the potential to achieve higher returns. But it’s also important to ensure the amount of risk is appropriate based upon what you’re trying to accomplish.
Typically, what prevents most investors from reaching their goals is not market volatility itself, but 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 in advance, you can better stick to your long-term strategy during the inevitable market corrections along the way.
So how much risk makes sense for your situation? Ultimately, it’s the amount that balances how much risk you are comfortable with taking with the amount that you need to (and can) take to reach your goals. As you work to balance these items with the help of your financial advisor, you may need to make some difficult decisions and trade-offs to create an appropriate investment strategy that fits your needs. But ultimately, these decisions can help you avoid the biggest risk you face: not reaching your financial goals.