Wealth Connexion explains the role of risk tolerance within your financial planning, and how we can help.
Any activity that you undertake with your finances will involve some sort of risk – without risk, you are unlikely to reap any rewards. Within your financial planning, risk tolerance refers to your ability to endure uncertainties and potential losses that come along with different investment choices. As your financial planner in Brisbane, we explain the role that risk tolerance plays in your financial planning and the aspects that influence it.
What role does risk tolerance play in financial planning?
Risk tolerance is incredibly influential in your financial planning, as it influences your investment decisions based on your personal comfort with potential loss. By ascertaining your risk tolerance, you (along with your financial planner in Brisbane) will be able to create a more personalised investment strategy that aligns more closely with your financial goals.
There are a number of aspects that can influence your individual risk tolerance, including…
Personal Financial Goals
Your personal goals will help you determine how much risk you may be willing to take in your investments. For instance, if you have shorter-term goals that require more financial stability, your tolerance for risk may be lower and may require a less aggressive approach.
Financial Knowledge and Experience
An individual with a deeper understanding and knowledge of markets and investing tend to be much more comfortable navigating complexities when it comes to their financial planning, so they can be more inclined to take on a higher level of risk. Overall, being a well-informed investor makes you better equipped for making effective strategic decisions – which is why you should hire a financial planner in Brisbane.
Capacity for Loss
Your capacity for loss refers to how much ‘wriggle room’ you have with your finances to account for any potential setbacks. To determine your capacity for loss, you should take into account income stability, available emergency funds, and your overall financial resilience. This, in turn, will help you to determine your risk tolerance.
Market Conditions
Your financial decisions must always take into account the current market conditions, and determining your risk tolerance is no exception. Periods of economic uncertainty or volatility may lead to you becoming more risk-averse, so you should aim to adapt your personal risk tolerance as the market changes in order to capitalise on stable periods, and safeguard your finances during periods of volatility.
The most effective way to navigate risk tolerance within your financial planning is to work with a professional financial planner in Brisbane. At Wealth Connexion, we can help you determine your risk tolerance, and develop a robust, effective financial plan to secure your future.
