AACreditUnion.org
| |
19
The second thing to know is your
own risk tolerance. Some investors are
comfortable knowing their holdings have
lost some value in a down market. Others
want to avoid any risk. Many online risk-
tolerance questionnaires can help investors
self-identify as aggressive and risk-tolerant,
or conservative and risk-averse and many
grades in between. Risk tolerance plus time
horizon will help suggest an appropriate
asset- allocation strategy.
Taking all this into consideration, a
conservative, risk-averse investor a few
years from retirement may allocate nearly
all of a portfolio to bonds. A twenty-
something aggressive, risk-tolerant re-
tirement saver may have nearly all of a
portfolio in stocks.
"By changing the asset mix of their
portfolios or adding more stable income-
producing equity securities, a less-volatile
and more-consistent performing portfolio
can be developed," Johnson says. Once
you understand your time horizon, risk
tolerance and the effects of asset allocation,
whether you are fresh out of college or
close to retirement, you can strategically
build a portfolio that can withstand a few
bumps in the market.
