Investment Read Time: 2 min

Risk Perspective

Risk is a factor in any investment decision that you make. Your tolerance for risk is something that you will want to consider when you make decisions alongside your trusted financial professional. Your risk tolerance is balanced against your time horizon, meaning the time between now and when you anticipate needing your money.

But is it possible to avoid a loss? No, not completely, but you can take steps to manage that risk when investing. This is where conversations about your risk tolerance are critical.

What would you rather have, $500 right now or a 50% chance at $2,000? Many people go for the $2,000 and rightfully so. Since you have a 50/50 chance, a decision tree shows the $2,000 answer carries a potential value of $1,000.

But let’s add a few zeros and see if that changes your perspective.

What would you rather have, $50,000 right now or a 50% chance at $200,000? The decision tree says the opportunity to win $200,000 has the highest potential value. But in reality, many people second-guess that decision because $50,000 is a lot of money.

Remember, there is no correct answer to these questions. They simply help you better understand the concept of risk.

Investment risk can be managed, but it can’t be eliminated entirely. All investments carry some level of risk. And in general, the greater the risk an investment carries, the higher its potential return.

Risk happens, but don’t let it get in the way of your dreams. Ultimately, these concerns should only serve to inform you and the questions that you ask the financial professional you are working with. The conversation should include your questions about the risks for each strategy presented as well as questions from your professional about the investment goals you want and the aspirations you hope to realize.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. 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. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. 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. Copyright FMG Suite.

Share |
 

Related Content

You Would Rather Be...

You Would Rather Be...

Are you a thrill seeker, or content to relax in the backyard? Use this flowchart to find out more about your risk tolerance.

Insurance Planning Following Divorce

Insurance Planning Following Divorce

If you are recently divorced, take steps to ensure that you are properly protected.

Don't Myth Out on Whole Life

Don't Myth Out on Whole Life

There are a lot of myths around whole life. Get the facts here.

 

Have A Question About This Topic?







Thank you! Oops!

Countdown to College

Preparing for college means setting goals, staying focused, and tackling a few key milestones along the way.

This Is Your Brain on Retirement

The brain is a powerful thing, but when it comes to preparing for something that is far in the distance like retirement, it can easily be led astray — and result in some big retirement planning mistakes.

Retirement Considerations in Your 60s

Welcome to your 60s – the time in your life when retirement is less a far-off dream and more an immediate reality.

View all articles

Comparing Investments

This calculator compares the net gain of a taxable investment versus a tax-favored one.

Capital Gains Tax Estimator

Use this calculator to estimate your capital gains tax.

Federal Income Tax

Use this calculator to estimate your income tax liability along with average and marginal tax rates.

View all calculators

Investment Strategies for Retirement

Investment tools and strategies that can enable you to pursue your retirement goals.

Protecting Those Who Matter Most

The importance of life insurance, how it works, and how much coverage you need.

An Inside Look at Retirement Living

A number of questions and concerns need to be addressed to help you better prepare for retirement living.

View all presentations

The Power of Compound Interest

Learn how to harness the power of compound interest for your investments.

Extended Care: A Patchwork of Possibilities

What is your plan for health care during retirement?

Once Upon a Goal

Do you know how to set up your financial goals for success? This knight does.

View all videos