If you want to succeed financially, you need to invest your money. Unfortunately, the very idea of investing can be scary for some people because every investment comes with some level of risk. There is a chance that, depending on market conditions, the value of a certain investment will decrease. Dwelling on this possibility for too long would be enough to make anyone nervous!
Thankfully, wealth managers have very effective strategies for managing risk across your investment portfolio. They also have strategies to help clients feel more comfortable taking measured risks. Your Financial Advisor will never try to talk you into tossing all of your money into a high-risk investment. Rather, they will work to determine the level of risk that you can realistically tolerate, then guide you in making investments that fit within that level of risk.
Here are some more specific ways in which Wealth Managers, like those at RLJ Wealth, can help you feel more comfortable taking risks with your investments.
In the past, Financial Planners have often relied on something called a risk tolerance questionnaire to determine how much risk their clients can tolerate. There are two key problems that these questionnaires present.
First, risk tolerance questionnaires tend to make clients really nervous. The whole idea of allowing a questionnaire tell them how much risk to take on can make folks really uneasy. Financial planning is not meant to be that stressful! Second, there is a big issue with bias. If a client knows they’re afraid of taking risks, that may affect the way they respond to the questionnaire. The results may then skew towards less risk when in reality, the client could tolerate a portfolio with more risk.
RLJ Wealth does not use a risk tolerance questionnaire. Instead, we use a comprehensive plan called Riskalyze to measure how much risk clients are comfortable with. Riskalyze analyzes statistical data from every possible type of investment. We can input a client’s current portfolio or a portfolio they are considering, and see how it should perform over the next 6 months. The results are calculated with 95% probability, which gives us and our clients a great degree of expectancy.
Riskalyze is more transparent for clients. It presents them with actual numbers, rather than using vague questions to assess their risk. Each client is given a risk tolerance level between 1 and 99. If you are ever curious about how your risk tolerance level was assigned, your Financial Planner can walk you through it. The whole process is designed to be transparent.
A Personalized Approach
Another way we help clients become more comfortable with risk is by taking a personalized approach. We look at your lifestyle, career, and goals to help select the investments we think are best suited to your needs.
You don’t have to worry that your money will be invested in a fund that’s too risky for you simply because that fund was “cool” or popular at the time. We specifically select investments to fit your needs – and we don’t select investments outside of your comfortable level of risk.
We also go beyond the surface when getting to know our clients. You and your neighbor, for example, may have the same profession. But you may have very different risk tolerance levels because you have different amounts of debt, family sizes, and goals. This is why we love getting to know our clients as people. It allows us to more accurately assess their risk tolerance overall, and recommend better-suited investments. If we were to simply recommend the same investments for everyone in the same profession, we’d miss a lot of this nuance.
Open Discussions and Education
Finally, we aim to help clients feel more comfortable with risk by developing an open dialogue and taking an education-focused approach. You should never feel like your Financial Planner is making your money decisions for you. Rather, we aim to walk alongside clients and guide them on their financial journeys.
We want our clients to feel comfortable asking questions at every step along the way. When presented with questions, we do our best to offer complete, informative answers. This applies to questions about risk, and also questions about other topics. If you’re wondering why we’re recommending investments with a certain level of risk, you can ask, and we’ll explain. We want you to understand what we are helping you do with your money.
Taking risks is a part of investing, and part of our job as wealth managers is to help clients feel more comfortable with that notion. If you’re looking for a Financial Advisor in the DeLand area, contact RLJ Wealth Management. We look forward to accompanying you on your financial journey.