6 Warning Signs Your Investment Risk Tolerance Is Holding You Back

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Estimated reading time: 9 minutes

Discover if your investment risk tolerance is hindering your potential with these 6 signs. Are you content with how your money is securing your future, or is fear holding you back from maximizing growth? It’s natural to feel apprehensive about financial investments. Often, our fears arise from the unknown. By understanding the wide range of investment opportunities available, we uncover numerous viable choices. Ready to make your money work for you? It’s time to delve into exploring your risk tolerance.

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Unlock Your Success: How Your Risk Tolerance Shapes Your Investment Journey

You may have come across the famous saying, “purchase term life insurance and invest the difference.” This wisdom suggests that instead of opting for permanent life insurance, you should invest the extra money you save by choosing term life insurance. While this advice may be considered wise in certain situations, it’s not surprising that only a small percentage of individuals truly commit to the investment aspect of this financial strategy.

Instead, what happens when we get a windfall is we go out and buy a boat (or something extravagant). I speak from experience because I’ve bought the boat! I often use my story when I’m speaking to investors. Years ago, instead of investing my money as I should, it was easier—and clearly more fun—to buy something bright, new, and shiny. In fact, I avoided the whole “investing thing” altogether.

Look Within: Assessing Your Investment Risk Tolerance

As I matured, I underwent a pivotal realization that prompted a necessary shift in my mindset. It was time to transition from seeking instant gratification to focusing on securing my future, including the prospect of retirement. This transformation involved deep introspection to uncover my underlying motivations. Why had I neglected investing my finances? Why hadn’t I prioritized it in my life?

Ultimately, I came to the realization that fear held me back. Back then, the realm of investing was a mystery to me. The fear of the unknown hindered my venture into investments. I hesitated to take a chance, fearing I might end up with nothing to show for it (indulging in lavish ‘wants’ felt more concrete). I had a limited understanding of my investment risk tolerance.

Now, after many years, I have a deep understanding of investing. When advising clients, I frequently recount this personal anecdote as I believe it resonates with many. Oftentimes, we hesitate to make prudent financial choices due to a lack of clarity on the implications, driven by fear of the uncertainties.

Exploring Investment Fears: Uncover Your Risk Tolerance in 6 Ways

1.     Uncover the Source of Your Comfort Zone

My aim is to unravel the underlying origins of investment fears. Understanding this root cause paves the way to cultivating confidence in your investment acumen.

How comfortable are you with taking risks? Do you prioritize saving for unexpected circumstances, or do you typically rely on each paycheck as it comes in?

It’s beneficial to investigate your financial situation from the outset. Do you follow a budget? Are you prepared for the unexpected? Have you set aside funds for retirement and future needs?

Gaining a comprehensive understanding of your financial landscape is crucial, whether you’re prioritizing short-term gains or long-term security. Achieving financial success hinges on recognizing your comfort zone and evaluating your position along the investment risk tolerance spectrum.

This insight not only guides your investment decisions but also points out where you should focus your learning efforts. By recognizing the intimidating aspects of investing or the areas that puzzle you, clarifying them becomes a breeze! This will equip you to make well-informed choices regarding your investments going forward.

2.     Know Thyself: Embrace Your True ‘Risk Tolerance’ Self

Determining the optimal investment approach can be perplexing. However, there is no one-size-fits-all method. It predominantly hinges on your personal preferences and risk tolerance. Various elements such as your individuality, current financial status, retirement aspirations, and lifestyle preferences shape your investment tactics. You might envision a retirement-free future, with distinct plans for what lies ahead. Personally, I find joy in my work and continue to work a few days each week, despite having “retired” years ago.

Individual investing preferences vary greatly. What works for me may not be the best fit for you. Some favor real estate investments, while others are drawn to the stock market. There are also those who seek secure, fixed investments with zero risk of loss.

Beware of the prominent financial experts promoting their investment products and setting minimum investment thresholds. These so-called experts are not just targeting you, but also countless others across the nation. The key issue is their lack of insight into your unique financial circumstances. While anyone can dispense investment guidance, if it’s not tailored to your specific situation, the advice holds no value. In severe instances, following their advice could result in substantial financial losses.

Work with a trusted professional who takes the time to understand your unique needs.

3.     Reaching Consensus: The Key to Harmonious Partnerships

Having worked with diverse individuals, I have noticed that when couples participate in shared investments, conflicts can emerge. Each investor has a distinct investment risk tolerance customized to their personal preferences. It is vital to recognize that what one person views as risky may not match the viewpoint of their partner or another individual.

It doesn’t mean one person is wrong and another is right. Even with similar or shared financial circumstances and retirement targets, you may still have different amounts of risk tolerance in your personality. One investor may embrace risk-taking and spontaneity, while another investor prefers a more cautious and gradual approach. The key is to find common ground where both parties can align.

A valuable guideline to remember is this: If you find yourself unable to sleep at night, your investment might not be the right fit. This straightforward advice is relevant for both novice and experienced investors. The essence of successful investing lies in striking a balance between the risk you are comfortable with and the growth you aim for.

When making investment decisions, always reconnect with your “why.” Having a clear rationale beforehand will ultimately benefit both you and your partner in the long run.

4.     Explore Your Retirement Savings Journey: Unveiling Plan Options

So, you don’t know the difference between an individual stock or a mutual fund, and feeling lost and unsure where to begin? It’s time to delve into your research. With countless options out there, it’s easy to feel overwhelmed. Stay calm and keep seeking answers. Collaborate with a trustworthy expert who can provide the guidance you need.

If your employer provides a retirement plan, and you’re uncertain about the specifics or need help in selecting between options, feel free to explore my post on 7 Retirement Plans Explained & What You Need to Know.

5.     Maximize Your Benefits: Harness Employer Contributions

Typically, an introduction to investing starts with your company’s 401(k) plan. This plan enables eligible employees to contribute a portion of their salary either before or after taxes through salary deferral (salary reduction).

Top financial advisors emphasize the importance of securing your future through contributions to a company 401(k). If your employer doesn’t provide this option, consider investing in another employer-sponsored qualified retirement plan they may provide.

A 401(k) presents a solid investment opportunity for nearly everyone. Consider this scenario: when you contribute 8% of your salary and your employer matches up to 4%, your funds start growing faster than you might expect. My recommendation is to always invest up to the company match threshold. Don’t miss out on this chance for extra cash – it’s essentially free money! Remember, this is a valuable part of your employee benefits package, so make the most of it.

6.     Opt for Investments that Match Your Risk Appetite

An employer-sponsored qualified retirement plan provides a wide array of investment options tailored to your risk tolerance, offering flexibility and choice to suit your financial goals.

  • If you lean towards caution, consider exploring opportunities in a high-yield fund or bond fund.
  • If you prefer a smoother journey, consider balanced funds.
  • If you are drawn to the allure of greater growth opportunities and are comfortable with the unpredictable nature of the market, you’ll likely have a range of options available to you, from growth funds to international funds.

Finally, bear in mind that as the investor, the onus is on you to determine the allocation within your retirement account. Ensure to consistently review and rebalance your investments. If you seek guidance on managing your retirement funds, here is a valuable post to peruse on the topic of how to evaluate your funds in just 15 minutes!

Investing Made Easy: Say Goodbye to Intimidation and Worry

Investing should not provoke intimidation or worry. With a savvy investment approach, tailored options matching your risk tolerance await. Feel assured and confident as your money diligently works towards securing your future.

While investing your money may not be as immediately thrilling as purchasing a boat, in the long run, it equips you for retirement and puts you in charge of your financial destiny.

If working on your finances is one of your goals right now (or, maybe it’s been a goal for some time), I suggest starting with the Making Cents Count Financial Organizer.

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Once you get your budget rolling, check out my post on 6 Simple Steps to Get Financially Organized. This post also includes a helpful checklist available in my Resource Library (free to access).

Admittedly, this particular checklist has a larger-scale focus on your overall financial picture, but I genuinely feel that getting your finances organized is essential.

I’m so excited to invite you to join our Financial Success Society Waitlist! Our enrollment opens soon (so don’t miss a chance to get on the notification list). Your journey to financial success is unique and with this exclusive membership, you’ll receive the guidance you desire, enabling you to move financially forward, no matter where you are in your financial journey. At Making Cents Count, we offer an array of outstanding products and services to help you get control of your finances so they won’t control you!

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