In investing, risk and return go hand in hand: some amount of strategic risk is necessary in order to ensure that your money is working for you to its full potential. However, not all risk is created equal: there is what I call “smart risk,” which is risk that you can expect to be compensated for taking. That’s the kind of risk that will help you maximize returns in your portfolio.
Everyone has a different risk tolerance, depending on your goals, your situation, and your time horizon (how long you plan to have your money invested in the markets). For example, if you have a thirty-year time horizon and your main goal is long-term wealth creation, you could take on more risk than someone whose time horizon is just a few years, and is focused on preserving and protecting their funds for retirement.
With that said, are you comfortable with the amount of smart risk in your investment strategy? Make sure that your advisor is aware of and accounts for your needs, and make sure that you understand the way your portfolio is allocated and why.
As a check-in, ask yourself: Are my advisor and I on the same page about the risk in my portfolio?
