Understanding Your Investment Risk

Basic Retirement Tips, Participant Resources

Risk is defined as the proportionate degree of gain or loss of any specific investment or portfolio.

Risk is generally separated into three categories:

  1. Conservative—least amount of risk

  2. Moderate—somewhat conservative and somewhat riskier

  3. Aggressive—the riskiest strategies with riskier investments.

Generally speaking, more aggressive (higher risk) investments may deliver higher average returns over time. However, this is offset by a higher potential for loss of principal compared to safer, more conservative investments. That, of course, means the opposite is true as well—the less risky the investment, the lower the risk of loss of principal and of course the lower potential for reward (lower return).

Everybody has a tolerance for risk equal to the three categories of risk: conservative, moderate, or aggressive.

Your tolerance for risk impacts how you will react when an investment moves from up to down during its volatility cycle.

  • How do you know your risk tolerance?

  • How much risk can you stand before you panic and make bad money decisions?

You can determine your risk indicator, a number that signifies where you fall on a risk tolerance scale. You do this by answering a few key questions.Your risk indicator will help you understand how to approach investment choices.

Let’s take a few minutes to determine your risk level. How much volatility, up and down in the value of an investment, can you stand? Let’s start by determining your risk tolerance. Go to https://www.envoyfinancial.com/education and click Determine Your Risk Tolerance.

If your investments mirror your tolerance for risk, it is more likely that you will persevere and create that sustainable portfolio previously described.

If you want to know more about your risk tolerance, contact an Envoy specialist who can help answer your questions.

View Risk Definitions for a more detailed explanation on the types of risk.

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