What does investment risk mean to you?
What does investment risk mean to you, either for an individual security, or for a portfolio? If you're like most people, you'll probably refer to the investment's standard deviation (or "SD"), which measures how much the investment's returns vary around its average. Stocks tend to have higher returns and higher SDs of their returns, while bonds tend to have lower returns and lower SDs of their returns. So, stocks are "high risk, high return" and bond are "low risk, low return", the thinking goes.
Another way to think about investment risk is the possibility that your portfolio returns will be too low to allow you to save enough to fund all of the goals. Think of this as the danger of "too little portfolio risk".
How much is "enough" portfolio risk? To answer that question, you really need a robust financial plan. Your plan will include a lot of assumptions, including one for the expected return
on your investments. Of course, it's important that the assumption is realistic and, more importantly, that you're comfortable with the risk associated with your investment mix.
A financial advisor can help you measure your investment risk tolerance, and then determine the right investment mix for your plan.
For more information on how COVID-19 affected your financial plan contact us today.
Springwater Wealth Management
6600 SW 105th Avenue, Suite 155
Beaverton, OR 97008