Investing can seem daunting at times for those that are just starting out. There are several concepts that need to be mastered to comprehend how to build an investment portfolio based on your specific needs. Knowing what you’re working toward may help you determine 3 critical things that can drive your investing decisions: time horizons, diversification of investments and risk tolerance.
Your time horizon is the length of time you plan to keep your money invested. To figure out your time horizon, ask yourself: “When will I need my money?” and “Is that date flexible in case the market is in the middle of a major downturn?”
Your risk tolerance is essentially your comfort level with risk. Are you someone who would lose sleep over a dip in your account balance, or are you willing to put it all on the line for big potential rewards? Maybe you fall somewhere in the middle!
There’s no right or wrong answer and your risk tolerance may change throughout your life. But here’s something to consider: As we noted before, the longer your time horizon (aka the longer you plan to keep your money invested), the more risk you’re likely able to take with your investments because they have time to bounce back after a drop. Generally, the longer your time horizon, the more time your investments have to reap potential benefits from compound growth, and the more risk you may be able to take.
You can manage certain risks in your portfolio by choosing different types of investments. Higher risk investments tend to be individual stocks and funds that are concentrated in one area—like a specific industry, theme, or strategy. Lower risk investments tend to be funds with more diversification—spread out across stocks, bonds, and cash, that aren’t concentrated in one industry or theme.
Rani Jarkas services as provided through Cedrus Investments, offers expertise in Private Wealth Management, Asset Management and Financial Advisory Services. As a highly experienced and accomplished financial services executive, Rani Jarkas and his Firm help clients simplify the process by focusing on only the investments that best serve their interests and objectives.