Tips for Choosing Investments: From a Financial Advisor
Investing can help you build wealth and reach your financial goals. Before you start, it’s important to have a plan. Whether you choose investments by yourself or with a professional, answering some key questions can help you decide wisely.
● How well can you handle market swings? If the stock market drops 30% and takes your portfolio down with it, will you stay the course or panic? Your investment choices should align with both your risk tolerance and financial ability to withstand volatility.
● What is your financial foundation? If you may need to sell investments just to cover daily expenses, your portfolio should reflect that reality.
● What’s your investment time horizon? A portfolio designed for a two-year timeframe will likely look very different from one meant to last 20 years. Time in the market is a critical factor in shaping your investment strategy.
Now, let’s break these down further.
Understanding Risk: Volatility and Your Comfort Level
Market risk—the possibility of a downturn impacting your investments—may be one of the biggest concerns for investors. Historically, stocks have delivered higher returns over time compared to bonds and cash, but they come with more volatility. That means prices can rise and fall unpredictably, sometimes dramatically.
Investors willing to accept short-term fluctuations may benefit from greater long-term returns. If market swings keep you up at night and lead to quick decisions, like selling too soon, you may need to change your approach. Choosing a risk level that allows you to stay invested through market cycles could prove to be beneficial.
Financial Stability and Risk Capacity
We believe your ability to take risks isn’t just about emotions—it’s also about your financial situation. An investor with an emergency fund and steady income can usually take on more risk than someone who lives paycheck to paycheck. Evaluating your personal financial cushion can help determine how much risk your portfolio can realistically handle.
The Role of Time in Investing
The length of time you plan to invest can play a crucial role in portfolio construction. Markets can be unpredictable in the short term, but historically, they tend to recover and grow over longer periods.
For example, a conservative portfolio with minimal stock exposure may see smaller fluctuations but also lower long-term returns. Meanwhile, a more aggressive approach with a higher allocation to stocks can offer greater growth potential—if you have the time and discipline to weather market downturns.
Balancing Risk, Time, and Financial Goals
We believe that a successful investment strategy takes into account three key factors:
1. Your emotional tolerance for risk – How comfortable are you with market ups and downs?
2. Your financial ability to take risk – Can you afford to stay invested during downturns?
3. Your time horizon – How long can you leave your money invested before needing it?
Sometimes, these factors align perfectly, but often, they don’t. You may be emotionally comfortable with risk but financially unable to take on too much. Or you may have the means to take risks but prefer a more cautious approach. An objective perspective—whether from a financial advisor or a structured investment plan—can help strike the right balance.
Sticking to your plan, even when markets fluctuate, can be an important factor to achieving long-term success. Investing is not about avoiding risk. It is about managing risk wisely to support your financial future.
Sources :
https://www.fidelity.com/learning-center/personal-finance/risk-tolerance-time-horizon
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.
