Home » Magazines Articles » J.P. Turner advisors asks, "Are You In Tune With Your Risk Tolerance These Days?"
J.P. Turner advisors asks, "Are You In Tune With Your Risk Tolerance These Days?"
Stash Graham, J.P. Turner investment executive, discusses the importance of understanding the risks involved with your investments.
PHOENIX, AZ, August 11, 2010 /Magazines PR News/ -- The trade-off between risk and return is one of the most important factors that you must weigh when examining potential investment opportunities and strategies. That said, it is essential that an investor have a firm understanding of the risks involved, as the prospect of higher returns undoubtedly is accompanied by the possibility of greater risk.
Coming to Terms with Risk
Risk can be more difficult to discuss than return, and not just because it's an unpleasant topic. The concept of risk is multidimensional, and depending on your goals and time frame, you may be able to tolerate some forms more than others. For example, how exposed is your portfolio to each of the following risks?
- Market risk, which has been so prominent recently, represents the possibility that the value of a portfolio will fall as a result of broad declines in stock prices.
- Inflation risk is at play when a portfolio doesn't provide returns that outpace the rising cost of living.
- Shortfall risk is the chance that a chosen investment strategy won't provide the return needed to achieve a particular goal.
- Interest rate risk might be described as a seesaw effect- if interest rates rise, bond prices typically fall, and vice versa.
The better you understand these and other types of risk, the better prepared you may be to assess your overall risk tolerance.
Measuring Intangibles
Risk can also be difficult to discuss because an investor's ability to tolerate it is not easily measured, like height or weight. It's dependent on a host of individual, sometimes intangible factors, including emotional reactions and past experiences.
But the process of measuring risk tolerance has come a long way. Decades ago, it wasn't uncommon to gauge risk tolerance by asking investors if they'd ever consider perilous activities, like hang gliding or mountain climbing. Today, surveys and questionnaires have been designed to help measure investors' risk tolerance relative to other investors depending on the score achieved, for example, an investor might fall on the "risk averse" end of a scale, the "risk tolerant" end or somewhere in between. Risk tolerance tools are also being advanced through the use of psychometrics, a field of study that incorporates psychology and statistics.
More important than the tools perhaps, is the input of an experienced professional who knows how to make the recommendations based in part on a client's risk tolerance. Risk tolerance has to be compared with an investor's risk requirement- the level of risk that needs to be accepted in order to pursue a particular financial objective. An individual with limited risk tolerance and more aggressive goals, for example, may need assistance structuring a portfolio with the potential to bridge the gap.
If it's time to review your risk tolerance, a process that may be worth repeating annually, consult your financial advisor. Together you can conduct a risk tolerance assessment and then crosscheck the results against your current portfolio.
About Stash Graham: Stash is an Investment Executive with independent brokerage firm, J.P. Turner & Company, LLC (Member SIPC), and a second generation financial professional who utilizes his market and economic analysis expertise to help people understand their finances. Based in Scottsdale, Arizona, Stash provides investment guidance to individuals and businesses located in the Tampa and Phoenix areas. Stash participates in a weekly financial segment on NewsTalk 820 AM reaching listeners in Tampa Bay and Western Florida. Prior to joining J.P. Turner, Stash served as Vice President and Market Analyst for a financial firm in Tampa. He holds a master's degree in business administration with a focus in finance, from La Salle University in Philadelphia. He can be reached at (480) 477-6317 or at SGraham@JPTurner.com.
Source: Standard & Poor's Financial Communications
J.P. Turner & Company, LLC, is a full-service independent investment banking and securities brokerage firm headquartered in Atlanta with some 180 branch offices nationwide. Its affiliate company, J.P. Turner & Company Capital Management, LLC, offers investment planning and advisory services. J.P. Turner was founded in 1997 by Bill Mello and Tim McAfee. Mello and McAfee have assembled a strong leadership team of seasoned financial brokers and advisors who, like themselves, truly understand the challenges faced by independent representatives in the field. The company is a member of SIPC and the National Investment Banking Association. J.P. Turner is consistently voted one of the top 50 independent broker/dealers by Investment News and one of the top broker-dealers by Financial Advisor. For additional information on J.P. Turner & Company visit www.jpturner.com. For information on J.P. Turner & Company Capital Management visit www.jpturnercm.com.
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Heidi Wheatley
J.P. Turner & Company, LLC
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