In creating the right portfolio, one that encompasses the right mix of assets to suit the client’s investment objectives, understanding a client’s risk tolerance is crucial. In this respect, StateTrust’s investment advisors raise two important questions:
- Does the thought of market volatility and business instability cause you to lose sleep at night?
Your answer to this question, lets us gauge your tolerance for taking risks to get higher returns on your investments. Higher returns typically involve significantly higher risk. This is where optimal asset allocation plays a pivotal role. The more you diversify, the more you reduce your risk. If we find that you are disinclined to take risks, we will place more emphasis in lower volatility assets such as bonds, short term fixed income assets and cash.
- What rate of return would satisfy your needs?
Once we have determined your risk profile, we can start to configure an appropriate asset allocation to optimize your portfolio. An integral part of the process is to define your ultimate goals . Will you need the money in five years for a new home, in ten years to fund a college education, or in 25 years to retire comfortably? For wealth building, your portfolio should feature more stocks. For stability, your portfolio should feature short-term bonds and money market funds.
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