What type of investor are you?
Whether you're a first-time investor or a more experienced one whose life goals have changed, it's imperative to consider where you stand - financially and in relation to your objectives - before you make decisions with any money you want to invest. Three key points help you assess your investment profile: risk tolerance, investment objective, and time horizon.
Your Risk Tolerance
All investments have a certain degree of risk, and it may be difficult to achieve a consistent, favorable return. Some people are comfortable with the ups and downs of the stock market; others may find a less risky approach - with potentially less return - more comfortable. Several factors can help you determine your individual risk tolerance:
The Gambler vs. The Conservative: Are you willing to accept temporary fluctuations in the market, and a possible decline in the value of your portfolio? Do you have money you could afford to lose? These are all traits of aggressive risk tolerance: someone who is willing to take a chance in exchange for a potentially higher return. However, if you don't feel comfortable with market volatility, you probably have a low risk tolerance. Many people find themselves between the two extremes - by distributing funds among a variety of investments, they can satisfy their goals and manage the risk.
Inexperienced vs. Experienced: Your life experience can impact your risk tolerance. If you've lost money before, you may tend to be more conservative. Or, if you don't have prior experience with investing, you may want to ease your way into it by making less risky investments. On the other hand, if you're an experienced investor, you're probably more comfortable with the potential volatility of today's markets - and have a sense of what level of risk works best for you.
Your Stage in Life: If you are younger and have time on your side - along with a secure livelihood - you may be comfortable making some risky investments. If you are nearing retirement and need steady growth with income, you may want a more moderate investment. But sometimes it works in reverse. A younger person may not have much disposable income to risk, particularly if he/she has a mortgage and children's college costs to think about. Meanwhile, an affluent senior may have substantial savings he/she does not anticipate needing and is willing to take a chance with. It all depends on your own unique situation - and goals.
Savers vs. Spenders: Do you save or spend money regularly? This could make a tremendous difference in your risk tolerance. For example, if you've saved enough money to cover everyday expenses plus extra for emergencies, you may be able to afford to invest in a riskier investment. But if you have just enough to cover your day-to-day expenses, then you may wish to stick to safer investments.
When assessing your financial risk tolerance, keep these considerations in mind. It's important to be realistic about these issues since any financial risk leaves a possibility for loss in the overall value of your money. The table on the next page can help you identify your risk tolerance.
Your Investment Objective
Another crucial component to understanding your "investor personality" is determining your objectives. It's important to ask yourself what you are trying to accomplish with the investment, by when, and in exchange for what level of risk. For example, are you looking for a safe harbor to preserve your initial investment? Do you want a vehicle that will provide income to help pay expenses? Or do you seek an investment that will grow over time? Take a look at the five investment objectives below and find the one that most closely matches your goals.
Income with Capital Preservation: This is the most conservative objective - you're looking to keep your initial investment (capital) safe and receive some current income. Investments that provide income with capital preservation generally do not promise growth and are therefore relatively safe. If your time horizon is short and/or you're risk averse, income with capital preservation may be your investment objective.
Income with Moderate Growth: If you'd like some current income, but would also like to see the value of your initial investment increase conservatively, then "income with moderate growth" describes your objective. Investments with income and moderate growth as their goals appeal to people with low risk tolerances and short to intermediate time horizons.
Growth with Income: People who find growth and income equally attractive generally have a moderate tolerance for risk and an intermediate investment horizon.
Growth: Investment vehicles focused on growth do not provide much, if any, income, since the underlying business plows profits back into the venture to help the business grow. Putting money in growth investments takes a little more nerve - you must be able to accept that you won't gain from your investment until (and unless) the underlying business does well and increases in value. Given that, it's best to have an intermediate or long-term investment horizon so you can weather any short-term fluctuations.
Aggressive Growth: Investments focused on aggressive growth aim to provide a higher-than-average increase of your initial capital investment. A higher-than-average rate of growth, however, translates into a higher-than-average risk. If you can tolerate that risk and have a long-term investment horizon (the longer the better), such an investment may be appropriate for a portion of your portfolio.
Your Time Horizon
"Time horizon" refers to the amount of time you plan to hold onto an investment or insurance product. When estimating a time frame for your investment, you should consider some of the following questions:
When will I need this money? Do you need it for your children's college education, for your own retirement - or ever? Deadlines like this play an important part in determining which product is right for you. And remember, as those deadlines approach you'll need to reassess your portfolio periodically and make adjustments as necessary.
Do I have enough time to recover if I suffer a loss? No investment is guaranteed, so the longer you have to recoup any potential loss, the better. If you have more time, you may want to accept more risk in exchange for a potentially higher return. But if you don't have a lot of time and if a setback would be a hardship, then stick to less risky investments.
What will my tax bracket be when I need this money? Some people find themselves in a lower tax bracket after they retire, or in a higher one as they earn more money. Your tax bracket will influence how attractive you find investments that provide income, growth, and/or tax deferral.
Are any charges, penalties, or taxes associated with this investment? Some investments carry charges or penalties if surrendered or redeemed during a certain period of time. In addition, there may be tax implications if you withdraw money from or sell an investment during a certain time frame or, in the case of a retirement vehicle, if you're younger than age 59 ½. If you want to avoid these charges, penalties, or taxes, plan to hold the investment beyond the time in question.
Helping You To Make Comfortable Choices
As your personality characterizes who you are, your investment personality clarifies the investment activity with which you'd be most comfortable and apt to meet your goals. For this reason, it's important to consider risk tolerance, investment objectives, and time horizon before you begin. If you have questions regarding this information or if you need help determining your investment personality, take a minute to fill out Your Investor Profile with your NYLIFE Securities Registered Representative. You'll find yourself better equipped to make decisions that address both your unique investor personality and your financial goals. And you'll learn more about yourself - and why New York Life is The Company You Keep.®
New York Life Insurance Company New York Life Insurance and Annuity Corporation (A Delaware Corporation) NYLIFE Securities Inc. (member FINRA, SIPC) A Licensed Insurance Agency. 51 Madison Avenue New York, NY 10010 www.newyorklife.com 13860 (9/00)
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