Embracing risk factors

Monday, January 16, 2017|Managing Investment Risk|
  • Embracing Risk Factors Adrian Mastracci

“Take risks: if you win, you will be happy; if you lose, you will be wise.”
— Author unknown

Too many investors are terrified at the prospect of incurring risk. My simple approach reduces the investment anxieties.

Investors typically shudder when risk springs up—a word they don’t want to hear. However, there is no need to dread risk—try managing it instead.

Portfolios constantly incur many types of risk. More importantly, it’s risk that drives your returns.

I stopped dreading investment risk long ago. Then I replaced the fretting with taking charge of risk.

Every investor ought to understand the types of risk being incurred. Mastering the risk game achieves better opportunities for investment success.

Risk management is top priority for every portfolio, regardless of family goals and size. Wise investors make risk their financial friend for life.

I propose revisiting the exposures to risks in your investment portfolio. Aim to get familiar with the risks that you can safely tolerate.

Start your journey by understanding this handful of fundamental risk factors:

Need
Need to take risks is associated with the rate of return required to achieve your goals. Aiming for a 5% return requires a different investment mix than seeking 10%.

Ability
Ability to take risks is associated with your investment time horizons. Someone still accumulating the nest egg has more options to recover from setbacks than a retiree.

Business
Unfolding business events affect investments you own, perhaps resulting in losses. Frequent culprits are poor earnings reports and feeble future prospects.

Desire
Desire to take risks is associated with your investor profile. Conservative investors are less inclined than the more aggressive to incur market swings.

Style
Style risks are associated with the types of investments you pursue. Growth investing aspires to long-term gains, while value investing strives for rising income.

Your landscape of portfolio risks can change quickly and frequently. Investors can’t avoid all risks, even those who follow conservative profiles.

It is the combination of risks incurred that ultimately delivers your returns. So get a clear handle on your particular appetite for investing risks.

Ask yourself this probing question: “Why am I incurring my mix of risks?” Appreciating your risk factors opens up a new page of portfolio management.

A detailed review helps reduce potential damages of risks. Another opinion from a fresh set of eyes may also be desirable.

About Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA  My expertise in the investment and financial advisory profession began in 1972. I graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971. I then attended the University of British Columbia, graduating with the MBA in 1972. I have attained the “Discretionary Portfolio Manager” professional designation. I am committed to offering clients the highest standard of personal service by providing prompt, courteous and professional attention. My advice is objective, unbiased and without conflicts of interest. I’m part of a team that delivers comprehensive services and best value in managing client wealth.

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