Developing A Portfolio Risk Profile

Sean Sevey |
Categories
Education

When I was a young advisor, I learned how to help people with their money in a formal training. The goal was to figure out what each person needed and wanted, and then make a plan for their money that fit them best.

But guess what? I didn't know that this was like trying to fit everyone into the same mold! You might have seen those molds – they look like 40/60 or 60/40. Advisors like me are taught to decide how much risk a person can take with their money and then pick a plan that matches.

The problem is that the questions and forms we use are like puzzles that force you into one mold. Unfortunately, this way of doing things forgets about two other ways to figure out the right plan for your money.

Let's look at the three important ideas:

  • **Risk Tolerance:** This is about how okay you are with the chance of losing money and your overall feelings about taking risks.
  • **Risk Capacity:** This is about how well you can handle problems with money. It looks at things like how much money you have, how steady your income is, and how much time you have to fix problems.
  • **Risk Perception:** Some people are really careful with money even if they could take more risks, while others are okay with more risks than their situation suggests.

In my 24 years as an advisor, I've seen problems with only thinking about Risk Tolerance. I've never met a married couple with the same feelings about risks. I've never met someone who fits perfectly into one plan. I've never met a person who can say exactly how much money they can lose before they start to panic.

At Sevey Wealth, we figure out our clients' money plans by looking at:

  • How much money they need now and in the future.
  • The smallest amount of return on their money needed for success.
  • If all their money is needed or if some can go to good causes.
  • Past experiences with money and investing.
  • How their money fits with their goals and likes.

If you feel stuck in a plan or worry that your money plan doesn't match your life, maybe it's time to think about a new strategy. At Sevey Wealth, we want your money plan to be just right for you!