When it comes to managing your investment accounts, it’s important to know what level of risk you’re willing to take for potential return in each of your accounts, such as your 401(k), Roth/Traditional IRAs, and individual brokerage accounts.
To obtain the proper level of risk per account, you may need to diversify your investments, which means spreading your money across different asset classes, such as stocks, bonds, and cash equivalents, to help manage risk and maximize potential returns.
In this blog, we’ll explore the first step in assessing your risk by addressing your risk tolerance.
What is risk tolerance?
Your risk tolerance refers to your ability to withstand downturns in the value of your investments. Think in terms of how you feel when you notice the stock market had a bad day, month, or quarter. Are you running to the mailbox or signing into your accounts to see how much you’ve been impacted? Or are you comfortable stomaching the ebbs and flows of market volatility and are in for the long run?
Some people are comfortable with higher levels of risk, while others prefer more conservative approaches. Consider your overall risk tolerance when deciding whether to have the same risk level across all accounts. You may be comfortable with a more aggressive allocation across all your accounts if you have a higher risk tolerance. However, if you have a lower risk tolerance, you might prefer a more conservative approach.
Curious as to what your risk tolerance is? Take this quick risk survey!
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