Investment strategies should be thoughtfully designed in accordance with three key factors:
Risk Tolerance is just as the name suggests; one’s ability to tolerate fluctuations in prices and the inherent uncertainty that comes with investing.
Determining Risk Tolerance is largely a qualitative analysis that takes into account personality types, investing history, and overall financial situation.
Determining an investor’s Risk Capacity allows for an understanding of how much risk can be taken. Our Blueprinting process uncovers integral data points to suggest a given capacity for taking risk.
As an example, an investor needing 10% annual distributions from their portfolio to fund fixed living expenses may have a lower capacity for risk than if they only required 2%.
Investment Objectives are the purpose for investing and they should be established beforehand and reviewed often. These objectives change over time and, as they evolve, so should portfolios. Both the type of objective and the investing timeline for each are critical components in determining the approach that needs to be taken.
The harmonization of Risk Tolerance, Risk Capacity and Investment Objectives should yield a custom-tailored investment approach suited directly to your needs and wants.