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5 Areas to Review to Assess Your Risk Tolerance

Managing Your Finances Investment

Military officers are used to, and I would say comfortable with, uncertainty. We're all very familiar with the Fog of War. There is plenty of fog when it comes to investments as well since there really is no such thing as a sure thing.

Your comfort with uncertainty when dealing with your profession may or may not carry over to your tolerance for risk when it comes to your money and investing. Follow these 5 steps to see where you sit.

1. Your Personality

As mentioned above your comfort with uncertainty in military operations may not carry over to your finances. Do you constantly watch CNBC and worry about what the market is doing? Does the thought of losing money turn your stomach? The first step is to access your comfort with fluctuating portfolio value.

2. What are Your Financial Goals?

If your goals are pretty expensive, then you may need to earn pretty high returns to reach them. With those high returns you'll get a higher level of risk which means the value of your portfolio could fluctuate a lot. On the other hand if your goals are more modest, you may be able to build a portfolio with less risk as you don't need to get the higher returns.

3. How Much Time Do You Have?

If you’re relatively young, you have plenty of time to ride out the peaks and valleys of the economy. You can tolerate a little more risk by design. If you have a goal you need to meet quickly (buying a home) or you are nearing retirement age, you may want to think more conservatively so that you don’t lose too much money. As a general rule, if you need the money in 3 years or less, you shouldn't expose your investments to market risk. Put that money in a safe account like a bank account or CD.

4. Your Wealth and Income

If you have a lot of assets and your goals are not too expensive then you can accept a higher level of risk. This is due to the fact even if you have a large loss, you'll still be able to reach your goals. It is important to note though, that you don't need to take this level of risk. Conversely, if you barely have enough assets to reach your goals, a large loss would be devastating. If a high return is required to reach your goals and you can barely reach your goals with that return, you might want to look at reducing the amount you plan to spend on goals.

If you retire from the military, the steady income from your pension may allow you to accept more risk. But, depending on your personality, it may or may not be appropriate.

5. Get Good Advice

Working with a financial advisor that specializes in working with military officers can reveal clues about your risk tolerance and map out a strategy. In our case, we'll have you complete an exercise to determine your risk tolerance and we'll look at how your portfolio would perform under different scenarios. Then we'll talk about how you would react to those fluctuations. When they do occur, you'll be ready for them and have a plan to respond versus reacting to the news. 


If you liked this article, you might like the following blog posts:

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This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.


Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.