Aligning Your Goals and Risk Tolerance

Now is a good time to reflect, reassess and prepare for the year ahead. Aligning your investments with new financial objectives can alter the focus of strategies implemented to accommodate your plans. Understanding your risk tolerance is important to your overall well-being when establishing an investment approach to achieve your goals, whether they involve home improvements, travel, savings for a significant family event, wealth accumulation, or preserving capital for the unexpected.

The Chartered Financial Analyst (CFA) Institute, defines investment risk profiling as the process of determining an investor’s risk tolerance and risk capacity, which are then used to construct an investment portfolio that aligns with the investor’s objectives. It is important to ascertain the degree of risk, or risk need, that might be necessary to achieve defined financial objectives. The process also involves establishing your risk-taking ability and behavioral loss tolerance. Investment time-horizon and liquidity needs can affect your risk-taking ability, while factors such as financial knowledge and investing experience can affect your behavioral loss tolerance. Touching base with your advisor is important whenever current events test your tolerance for loss, and alter your perception of risk.

There are some notable emotional and psychological benefits to identifying your risk tolerance. An accurate risk perspective can help you with:

• Decision-making: Avoid making emotional decisions that could negatively impact your investments, such as market timing or fear of missing out (FOMO).
• Maintaining discipline: Staying on track with your objectives during market volatility.
• Investment expectations:  Establish more realistic expectations for your investments and guide you to avoid taking on too much risk.
• Financial stress:  Reduce stress by understanding what motivates your investing anxieties.

Establishing your risk tolerance and having a strategy to achieve your future objectives are similar to starting a road trip, after you have outlined your route and allocated your resources to ensure you reach your destination.  The key to a successful journey is proper planning and careful consideration of your comfort level along the way.  While there are a variety of tools and methods to assess an investor’s risk tolerance, we find that leveraging technology, and above all, maintaining communication with our clients, yields the best results.  Changes in perspectives, family dynamics, goals, and many financial circumstances might affect one’s risk tolerance, and necessitate reassessing your objectives and strategies related to achieving them.

As your trusted advisor, we welcome the opportunity to discuss these matters throughout the year. We look at your assets holistically when aligning your objectives and investments to your risk tolerance, and make adjustments accordingly. We want you to feel confident that you aren’t taking on an uncomfortable level of risk, or conversely, investing too conservatively to achieve anticipated returns.   

At Biondo Investment Advisors, building strong client relationships is one of the most fundamental aspects of our business. Through portfolio reviews, ongoing communication and the utilization of intuitive technologies, we strive to recognize what you value most and provide investment guidance that suits your personal financial profile. We look forward to continuing that journey with you, or with your friends, family, and colleagues as well. They may reach out to me, or any member of the Biondo team, to learn more.

Source: CFAinstitute.org