Nils Larsen Manager of financial portfolios recently discussed risk tolerance and what it means when investing.
LOS ANGELES, CA / JAN. 27, 2022 / Nils Larsen manager of financial portfolios is an expert in risk management for investors. He recently explained what risk tolerance is and how it can be managed to create the best investment opportunities.
What Is Risk Tolerance?
Risk tolerance is the level of variability an investor is willing to accept in their investment returns. An investor’s risk tolerance is taken into account when creating and managing an investment portfolio.
“Risk tolerance varies from one individual to the next,” Nils Larsen said. “It is dependent on the investor’s personality, age, current financial standing, and predicted financial needs.”
Risk Tolerance and Age
Risk tolerance is commonly associated with age; although, that’s not the only factor used in determining a person’s risk tolerance.
Generally, younger individuals have a higher risk tolerance, because they have a longer time to endure ups and downs in the market. Financial planners often suggest older investors take on less risk, as they have a shorter amount of time to recover from major downward swings.
Risk Tolerance and Investments
A person’s risk tolerance directly affects the types of investments they should make. Greater risk tolerance is commonly associated with investing in equity funds, equities, and exchange-traded funds (ETFs).
Lower risk tolerance may be associated with bond funds, bonds, and also ETFs. However, age itself shouldn’t be the only determining factor in the types of assets chosen.
“It’s essential that a financial portfolio manager considers the net worth of the individual when determining his or her risk tolerance,” Nils Larsen manager of financial portfolios said. “Individuals with a high amount of disposable income or a higher net worth can take more risks. This is a factor that is not always related to age.”
Risk Tolerance and Outside Factors
An investor’s risk tolerance is partially determined by outside factors, like market risk, stock market swings, volatility, political events, changing interest rates, and more.
Investors must be aware that any of these factors can cause their portfolio to swing in one direction or the other. Some investors are more relaxed when tolerating these swings, while they cause great anxiety for others.
“It’s important for a financial portfolio manager to take the individual’s personality, as well as possible upcoming major market swings, into account when creating and managing the portfolio,” Nils Larsen said.
Nils Larsen Manager of Financial Portfolios
Nils Larsen is a financial portfolio manager with expertise in financial goals, objectives, and risk management. He is an expert in adjusting financial portfolios to meet the needs of the client as well as the changing market environment and numerous other factors. Larsen holds more than 20 years of experience in the industry.