|First, you need to know your own risk tolerance. How much risk will you be willing to incur in exchange for potentially higher returns?
You’ll also need to understand your risk capacity. How much risk you can actually handle, from a financial perspective.
Finally, you should know your required risk. The amount of risk you’ll need to accept to achieve the returns necessary to reach your goals.
Ultimately, you must use your risk tolerance, risk capacity and required risk as factors in a comprehensive investment strategy. By creating this strategy, and sticking with it over time, you’ll be able to make appropriate investment decisions throughout your life.
Most investments move up and down. How can you deal with this volatility?
Consider following a time-tested strategy known as systematic investing, which involves investing a fixed dollar amount at regular intervals.
So, for example, you could invest $100 per month, every month, into the same investment. Over time, this technique can help you potentially lower the cost of investing and reduce the effects of dramatic price swings. Plus, it can help make you a more disciplined investor.
While systematic investing can help you cope with volatility, it can’t guarantee a profit or prevent a loss in declining markets. And you need the financial wherewithal to keep investing through up and down markets.
But if you have that ability, consider putting systematic investing to work. It may not be glitzy or glamorous, but it can be effective.
Contact Wendell at Edward Jones www.edwardjones.com.