The Key to Smarter, More Resilient Investing
When it comes to investing, one of the most crucial—and often underestimated—steps is understanding your true investment risk profile. This isn’t just a formality; it’s the bedrock of building a portfolio you can stick with, even when markets get choppy.
What Is an Investment Risk Profile?
Some investors may be aggressive, while others are moderate or conservative. Your risk profile is a personal assessment of how much investment risk you’re both willing and able to take. It considers your financial situation, goals, investment timeline, and—most importantly—how you react to market ups and downs.
Think of it as your investment “comfort zone”. The better you know it, the more likely you are to make decisions that serve your long-term interests. Remember that your real risk profile will be tested not when markets are moving up and everything is rosy, but rather when volatility comes and uncertainty arrives.
Why Is the Right Risk Profile So Important?
At Argentum Wealth, we’ve seen firsthand the consequences of misaligned risk profiles. On a few occasions, clients described themselves as “aggressive” investors, so we help them build a growth portfolio. However, when markets hit a rough patch and values suddenly drop, these same clients succumb to their emotions and ask us to sell their assets.
Selling investments during a downturn locks in losses and can significantly harm long-term performance and the ability of investments to benefit from long-term compounding. In fact, some of the worst investment outcomes occur when investors sell at a low point out of fear, only to miss the subsequent market recovery.
Why Does This Happen?
When your portfolio is riskier than you’re truly comfortable with, market volatility can trigger emotional decision-making. Even if you intellectually understand the importance of “staying the course”, your natural reaction to losses may override your original intentions. This is why accurately assessing your risk profile is so critical.
Introducing Our New Risk Profile Questionnaire
We have created a brand-new tool on our website: the Investment Risk Profile Questionnaire. This free, easy-to-use resource is designed to help you gain a clearer understanding of your unique risk profile and help us build a portfolio that truly fits you.
Getting to know your risk profile
Understanding how much risk you’re comfortable with is an important step in shaping your portfolio investment strategy. This information helps you and your advisor make smart choices about how you should be investing your money.
Keep in mind that your risk profile can shift over time as your financial situation or goals change. If your situation, time frame, or feelings about risk change, you can adjust your investment portfolio anytime — just let us know.
Find out your own risk category now by answering the following questions: