Most investors are familiar with the risk-reward concept, but fail to fully understand what their personal risk level is when it comes to investing. AOG Wealth Management, your experienced wealth management advisor , shares some ways to help you determine the risk preference.
Risk Preference
Risk preference is a concept about what a person chooses to do when faced with a risky option vs a more definite or defined option. It can be difficult for investors to determine how much risk they can handle, especially with the variety of investments to choose from. When weighing your options, here are the two factors you should consider:
The Risk Pyramid
Once you have decided how much risk is acceptable by acknowledging both the amount of money to invest and time horizon, use the risk pyramid approach to help balance your assets. This pyramid is a tool that investors can use to spread out their portfolios based on each one’s risk profile. There are three distinct tiers to the pyramid: the base, middle, and the summit.
The foundation represents the strongest option, supporting everything above. The focus is low-risk investments with more consistent returns. As the largest area, it comprises the majority of your assets. The middle portion should consist of medium-risk investments with a stable return that allows capital appreciation. These investments, while riskier than those at the base, are still relatively safe. Lastly, the summit is reserved for higher-risk investments. The smallest area of your pyramid should be made up of the money you can afford to lose without serious repercussions.
These tactics along with proper wealth management strategies are some of the key factors that can help you achieve your financial goals. Call AOG Wealth Management at (866) 993-0203 to learn more about our services.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.