The accuracy of risk tolerance is important at all times when it comes to investing. It is even more important during market volatility. Some investors could lose a lot of sleep at night during market volatility if their investments were higher risk than they expected.
When an investor is working with a financial advisor in setting up an investment account, a risk tolerance assessment helps as a guide for them in product selection. Below are a couple of factors that help in determining risk tolerance.
Time horizon is one of the most important factors in determining risk tolerance. As we have seen lately, stock markets can be quite volatile. An investor with a longer time horizon will be able to handle this volatility as they have the time to allow their investments to recover their value.
Investor’s Investment Knowledge
Another factor in determining risk tolerance is the investment knowledge of the investor. An investor with advanced investment knowledge will understand that markets fluctuate and will not get overly concerned and make an emotional decision when markets are down.
Mutual funds may be a good product option for investors who are comfortable with some risk. At the end of a risk assessment, it is sometimes determined that a guaranteed product is the best option available when the investor has a low risk tolerance.
If you have any questions about mutual funds, please contact our PlanWright Financial office and talk to one of our Credential Asset Management Inc. Mutual Funds Investment Specialists.
Mutual funds are offered through Credential Asset Management Inc. The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds.