Your Risk Appetite
August 19, 2009Your Risk AppetiteDiscovering your Appetite for Risk Many people ask me what they should be investing in now. Should they be more cautious because of the uncertainty out there? Or should they jump in to equities because ‘experts’ say a recovery is around the corner? But the decision of how to allocate your portfolio, between stocks and relatively safer securities like bonds and GICs, comes down to two things. First, what your investment return objectives are, which relates to your overall financial plan for the future. Second, how much tolerance you have for risk or, more simply, market volatility. The point that some people miss is that appetite for risk is determined by not only how much risk you can handle based on your present financial situation (income, assets, household requirements, etc), but also how much risk you are willing to take. If anything, the correction in stocks in 2008 and early 2009 has caused many investors to become less tolerant of risk, especially if they are also in the home stretch to retirement. Everyone should therefore get in the habit of a regular review of not only their portfolio, but how their objectives and risk appetite balance out. Doing so will help minimize risk of being inappropriately invested, regardless of what direction the markets go. Andrew Pyle, MA, CIM, FMA, FCSI Stay informed
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