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When it comes to volatility and finding a desired risk level within your portfolio, here is a handy acronym we at Howard Bailey even use with the families we meet with: C.A.N. you take the risk? (C-Capacity, A-Attitude and N-Need). The mindset behind each area is as follows:
📌Capacity: How much risk can you withstand, objectively? It’s important to keep in mind that your definition of an aggressive, moderate or conservative investment will differ from that of the financial industry, and to consider not only the amount of risk needed to reach your financial goals, but the amount of risk you can emotionally handle.
📌Attitude: How do you feel about risk? What is your comfort level? Synonymously weighing both the potential return on investment and your personal attitude toward risk is key. Just like the author, this is why our team also utilizes the Riskalyze assessment to provide a starting point of where you might fall in the aggressive to conservative range.
📌Need: How much risk do you really need to take? What rate of return will help you reach your financial goals, and most importantly, financial peace of mind? It might be a lower number than you expect, and always bear in mind, a large market loss has the power to create much more impact on your retirement nest egg than a large gain.
Take it a step further: Check out my YouTube video on how we leverage software to walk you through this important discussion.