Brian Preston and Bo Hanson, co-hosts of the Money Guy Show, share the microphone with Doug, our favorite Money Guy, to discuss why and how should you evaluate, and re-evaluate, your investment risk profile as life changes. “How much risk can your situation handle?” is a very different question than “How much risk can you handle?” There’s a significant difference between risk tolerance and risk capacity. Learn what the difference is, and how to adjust your portfolio and emotional expectations for both. Given enough time, the markets may recover, but do you have enough time in your own plan to recover from potential loss? While protecting yourself against risk, keep in mind that “today’s dollars” have a different value than “future dollars.” $100 of today’s dollars might not fill your future shopping cart, so plan accordingly.
Are your comfortable with your risk profile?How much risk can you really stand – answer in real numbers, not percentages. Which hurts more: losing 10% of your portfolio or losing $50K? Using dollar figures when calculating your risk profile may make the risk feel “more real” than using percentages. Make sure to periodically check in with your financial advisor as your life changes. Major lifestyle events (new children, job, marriage, etc.) can trigger the need to update your risk tolerance. So the next time you change your status, make sure to alert your financial advisor, in case an adjustment in your investment strategy is in order. To learn more about The Money Guys, go to their website, or follow on Twitter @MoneyGuyPodcast. If you’re not already receiving updates on new episodes, sign up now, and as a special bonus, receive Doug’s free ebook The Retirement Planning Book.
