Welcome to the series of Posts from Your Archives, where bloggers put their trust in me. In this series, I dive into a blogger’s archives and select four posts to share here to my audience.
If you would like to know how it works here is the original post: https://smorgasbordinvitation.wordpress.com/2019/04/28/smorgasbord-posts-from-your-archives-newseries-pot-luck-and-do-you-trust-me/
Today’s contributor is financial expert and author Sharon Marchisello, who shares her down to earth and valuable insights into managing our assets. Sharon has two blogs and I will be focusing on her Countdown to Financial Freedom during this series. In this post Sharon shares how to determine the level of risk you are willing to accept when investing your money.
Investment – Know Your Tolerance for Risk by Sharon Marchisello
You’ve paid down debt, built an emergency fund, and now you’ve finally saved up some money to invest. But before you hand your hard-earned dollars to a broker, determine your tolerance for risk.
You can find sample “risk tolerance” questionnaires on the internet. It’s almost like a personality test. If you work with a financial planner or investment counselor, he or she will most likely have you take such a quiz, or at least ask you similar questions before setting you up with a suitable investment plan.
Besides your age, income, assets, expenses, and plans for your money, you will be asked questions like, “What percentage of your investment are you prepared to lose?” and “How important is it for you to keep up with inflation?” “Can you stomach putting some, or all, of your principal at risk?” Some quizzes ask you what synonym for “risk” comes to mind. Danger? Opportunity? Thrill? You might be given scenarios to choose from: an investment that would never go down more than 10% but would only gain a maximum of 5% versus an investment with the potential of returning 30% but could lose 30% or more. Or you might see a question like, would you prefer Door Number 1—$1000 as a sure thing—or Door Number 2, with a 25% chance to win $10,000?
It’s important to understand how you react to risk before choosing an investment. If an investment constantly keeps you awake at night, it might not be appropriate for your portfolio. If you have to check your account balance hourly and rush to sell your stock the first time its price goes down, investing in the stock market might not be the right choice for you. The stock market goes up and down, and if you get euphoric and buy when it’s up and panic-sell when it’s down, you will lose money.
The younger you are, the more risk you can handle with long-term investments, such as a retirement fund, provided you have the courage to stay invested despite market fluctuations. Historically, the stock market has yielded better returns than bonds or cash equivalents. Downturns actually provide opportunity to grow your wealth by purchasing more shares of stock or a mutual fund at a discount—if you stick to a plan of investing regularly. (You can do this automatically by reinvesting dividends and capital gains, i.e., dollar-cost averaging.)
What some risk-averse investors don’t realize is that, by not investing in stocks or more aggressive mutual funds, by keeping all their money in cash accounts where the principal is secure but growth is almost non-existent, their nest egg may not keep up with inflation. And despite their cautious approach, they still won’t have enough money to live on in retirement. So they are accepting risk whether they like it or not.
The closer you get to retirement, to the time when you will begin living off your assets, the more conservative you’ll want to become with your investment allocation. Like with your emergency fund, you’ll no longer have time to weather a major downturn, and if you have to start withdrawing the money, you’ll be locking in losses.
Risk and reward go hand in hand. Aggressive investors are willing to risk losing a chunk of money in exchange for the prospect of greater reward. Conservative investors prefer to preserve their principal, but in exchange for that security, they must accept more modest returns.
What kind of investor are you, and have your views changed over time? I’d love to hear your comments.
©Sharon Marchisello 2017
About Sharon Marchisello
Sharon Marchisello is the author of “The Ghost on Timber Way,” part of a short story anthology entitled Mystery, Atlanta Style, featuring fellow Sisters in Crime members. She has published a personal finance e-book entitled Live Cheaply, Be Happy, Grow Wealthy, as well as numerous travel articles, book reviews, and corporate training manuals.
Sharon grew up in Tyler, Texas, and earned her Bachelor of Arts from the University of Houston in French and English. She studied for a year in Tours, France, on a Rotary scholarship and then moved to Los Angeles to pursue her Masters in Professional Writing at the University of Southern California. Now she lives in Peachtree City, Georgia, with her husband and cat.
Retired from a 27-year career with Delta Air Lines, she does volunteer work for the Fayette Humane Society. Going Home is her first published novel. The murder mystery was inspired by her mother’s battle with Alzheimer’s, which prompted her to wonder what it would be like to interview a witness or a suspect who could not rely on her memory.
Books by Sharon Marchisello
One of the recent reviews for Live Well, Grow Wealth
Sometimes it can be hard for me to read books due too much going on with content, but Marchisello’s book was a really easy read for me. I can’t do complicated when it comes to books. She was really relate-able, because I didn’t grow up as a math centric person, and I also came from what would be considered a middle-class family. As a 27-year-old, her advice made me think about my life, and what I could be doing differently (therefore better!) with my money. She also changed the way I think about money. I don’t think a lot of people grow up to consider things like a big picture, or what’s going in and out. It kind of gave made better sense of what’s going on around me. A good perspective shift.
Read the reviews and buy the book: https://www.amazon.com/Sharon-Marchisello/e/B00NH6N4WK/
and Amazon UK: https://www.amazon.co.uk/Sharon-Marchisello/e/B00NH6N4WK/
Read other reviews and follow Sharon on Goodreads: https://www.goodreads.com/author/show/4297807.Sharon_Marchisello
About the book
Live Cheaply, Be Happy, Grow Wealthy is Personal Finance 101, a commonsense guide to shrinking your financial footprint. Sharon Marchisello compares managing your financial life to reaching and maintaining a healthy weight, and in ten easy-to-follow steps, she shows ordinary people how to build wealth by living within their means without compromising their values.
The book is available from Smashwords: Live Cheaply, Be Happy, Grow Wealthy
Connect to Sharon.
Blogspot : https://sharonmarchisello.blogspot.com/
Blog WordPress: https://smarchisello.wordpress.com/
My thanks to Sharon for opening up her files to enable me to share her posts… we can always use free and unbiased financial advice… Sally.