Risk Tolerance. Q: Understanding one’s tolerance for risk is not as important as seeking a stock or mutual fund with a high yield. Answer: False. This issue deserves extensive consideration on the part of the investor. During your initial meeting with a financial planner, you’ll be asked this question. It is not only prudent, but critical that you give this thorough time and consideration. The riskiness of an investment is on a continuum; and the further you go out on the financial limb, the more reward you should expect for your risk. Keep in mind, the greater the risk, the greater volatility you may experience, along with the possibility of losing your investment. That’s why asset allocation is important. Fixed income is often considered to be a ballast in your portfolio, even if you don’t see great returns some years. Don’t just reach for the highest yield, no matter the consequences. Consider your age, your current portfolio amount, and your need to sleep at night.
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