Your risk tolerance can be boiled down into three words: capacity, attitude and need. Getting a grip on those concepts is the key to designing an appropriate portfolio for your retirement.
“In investing, what is comfortable is rarely profitable.” So says investment adviser to PIMCO, Robert Arnott.
While there’s certainly truth to this, most investors would be wise to consider just how uncomfortable they’re willing to be before the markets get rough. After all, an investment strategy that’s too uncomfortable may lead to abandonment of the strategy altogether, causing unnecessary losses and diminished confidence.
So much is said about “risk tolerance” in the investing community, but what does that even mean? How does one determine the amount and types of risk that are appropriate when building a portfolio? What works best for one investor may be wildly inappropriate for another, so let’s take a closer look at how to choose a portfolio that meets your objectives effectively and with minimal discomfort.
