By Al Emid  

Toronto – Canada

 

 

 

 

Al Emid has worked in communicating ideas and concepts since beginning his career at an educational television network in 1967.  He is the co-author and author of several financial books, most recently The Emid Report on Volatility 2019 available on all major book sites.

 

 

 

 

 

Chapter 9

Risk and You

 

 

 

 

 

In another edition I discussed the risk-reward ratio, one of two perspectives on risk that permeate investment decision making.  In this edition I talk about risk and you – your risk tolerance and how it affects – or should affect – the construction of your portfolio.  If you have a professional financial advisor, he or she likely completed a detailed questionnaire during your get-acquainted meeting.  A very important component of the questionnaire involved assessing your risk tolerance.  The advisor discussed it with you, noted your comments and noted that your risk tolerance is conservative, moderate or aggressive and subsequently took it into account when structuring your investment portfolio.

 

However, the advisor is not a psychic and can only deal with what the client says, and limited personal observation.  This equation works well when the client is brutally honest with himself or herself about the amount of risk they can tolerate and has become more important than ever during this period of extreme market volatility.

 

There are three broad categories and each investor needs to ‘locate’ himself or herself into one of these categories.  A conservative investor can only deal with very limited or even zero risk.  In many cases this type of person is a retiree who has worked diligently to build up retirement funds and is wary of any kind of risk.  This type of investor wants guaranteed return and so chooses vehicles such as bank certificates, money market funds and government bonds.  An investor with moderate risk tolerance will accept some risk but with a balanced approach, perhaps opting to invest half of the portfolio in equities and half in zero-risk assets.  An aggressive investor is more comfortable with market gyrations and this allows for investing in volatile investments and for a greater comfort level with the current market climate.

 

 

 

 





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