GETTING AN INVESTING GAME PLANCreating It, Working It, Winning It phần 3

38 Step 2: Know Your Risk Tolerance The Scourge of Inflation (Continued) presume an inflation rate of 3 percent going forward, you need to make sure that your game plan accounts for that rise. Stocks are a great defense against inflation because their earnings reflect the prices of goods and services. But bonds, so-called “fixed incomes,” don’t reflect price fluctuations. To the ex-tent your portfolio is in fixed income investments or cash, you need to con-sider the risk of inflation as you plan to meet your goals. those goals, but also their risk tolerance: the risk that they can’t take risk. All the formulas in the world are useless if you’re filled with dread each day over what’s happening—or not happening—with your money. That’s why this inquiry is critical before delving into the numerics of the game plan. Think of it as the calisthenics an athlete does before the actual game begins. To help you figure out your risk tolerance, I’ve presented a list of questions very similar to the ones I pose to my clients. I use these ques-tions to help clients design an investment strategy that they can stick with. If they’re risk-averse investors, I don’t want them to get too un-comfortable on the downside. If they’re risk takers, I don’t want them to get too antsy about missing upside. Why the customized tweaking? Be-cause if either extreme happens, the investor will bolt from the plan. And that’s where trouble happens. As you take this quiz, don’t try to pick the “right” answer. Try to be honest with yourself based on how you’ve acted in the past, or how you think you’d act in the future if you’ve already had some experi-ence. That’s the only way you’ll be able to create a game plan that will work for you. Before you begin, think broadly for a bit about how you would de-scribe your ability to handle investment risk. Try to draw up, mentally or on paper, a descriptive statement. For example, “I can’t handle losing money. The ups and downs of the market really bother me.” Or “I know I have to take some risk, but I would consider myself a pretty conservative Risk Quiz 39 investor.” Or “I get the idea of long-term investing and can’t even be bothered paying attention day to day.” Risk Quiz As you answer the quiz questions, write down your responses. Each time you choose a letter, give yourself one point for choosing an A, two points for a B, and three points for a C. 1. Your portfolio is invested partly in low-risk bond funds (about 40 percent) and partly in broadly diversified stock funds (about 60 percent), according to a long-term game plan. It’s late spring, and this year your stock funds are not doing well. They’re down about 5 percent, pretty much in line with the overall market. Wall Street analysts are divided on the market’s future. You . . . A. Sell all of your stock funds and move the money to bond funds or cash. B. Stick with your allocation despite your current jitters. C. Would never be in bonds in the first place! 2. In the mid 1990s the S&P 500 funds posted double-digit re-turns—37 percent in 1995, 23 percent in 1996. Looked good to you, so you invested, too. Here are the returns on that invest-ment for the next five years: 1997 1998 33.2% 28.6% 1999 2000 2001 21.1% –9.1% –12.0% During this period you . . . A. Can’t take the pain of 2000 into 2001 and sell. B. Decide to hold through all five years. C. Bolt in 1999 for a tech fund posting triple-digit returns. 3. Your core fund with most of your investment money has returned about 9 percent a year over the past five years. But you read about 40 Step 2: Know Your Risk Tolerance a health-care fund that’s returned more than twice that for each of the past two years, and you’re impressed with what you’ve read about the manager. You . . . A. Do nothing. B. Sell 5 percent of your core fund and invest the proceeds in the health-care fund. C. Sell 35 percent or more of your core fund and invest the pro-ceeds in the health-care fund. 4. Building on question 3, say you invested 5 percent of your portfo-lio in the hot-hand health-care fund, and after two great years this one fund now represents 12 percent of your portfolio. You . . . A. Were the one who didn’t invest in this fund back in question 3, and you still don’t want any part of it. B. Sell about half of the investment because, while you still have confidence, you want to take some money off the table. C. Are so thrilled with this fund you add another 5 percent of your portfolio to it. 5. In early 2000, you learned of a tech fund that had been up 185.3 percent in 1998 and 232 percent in 1999. You invest. By the end of 2000 the fund has lost 76.3 percent, and few expect tech to re-bound anytime soon. You . . . A. Would never have touched this fund in the first place. B. Sell and take the almost 25 percent of your investment you’ve got left. C. Stay the course while you watch another 70 percent of what’s left disappear in 2001. How did you score? Everyone falls somewhere on the risk spectrum, as seen in Table 2.2. If you have only 5 to 7 points, then you’re likely the type of investor who feels more comfortable giving up potential gains on the upside to cover your backside. You’re risk averse. If you tallied 13 to 15 points, then you’re an opportunistic investor who won’t be satisfied Step 2, Know Your Risk Tolerance: Summing Up 41 Table 2.2 The Risk Spectrum Risk Scale 5–7 Points Conservative (Risk averse) 8–12 Points Moderate (Risk steady) 13–15 Points Aggressive (Risk seeker) unless you’re getting some piece of the moment’s action. You’re a risk seeker. If you have 8 to 12 points, you’re the in-between type who’ll be pretty content with a steady course. You’re risk steady. Should everyone aim to become a B? While it never hurts to try to temper emotional extremes, at a certain point that effort is counterpro-ductive. If I’ve got a client who’s queasy regarding the market and wants out, like person A in question 1, I may offer some reasons why I believe the investor ought to stay in. But if those reasons are not persuasive, ulti-mately I won’t argue a person out of a decision. That’s like trying to tell someone to forget about a headache: “Just don’t let it bother you!” Well, if it is bothering you, then you’re the one who has to live with that pain. You’re the one who has to decide if it’s worth it. Step 2, Know Your Risk Tolerance: Summing Up The second step in creating a game plan is figuring out your risk toler-ance. Are you risk averse? Risk steady? Or a risk seeker? These aren’t rigid categories, but by now you should have a feel for where you gener-ally fit. You want to make sure there’s no gap between the risk you’re tak-ing in your portfolio and your personal risk tolerance. What will you do with this information? In Step 3, the next chap-ter, I’ll help you figure out your investment goals. That’s a mostly nu-merical exercise based on what you can save, how much time you’ve got ahead of you, and what lump sum you’re shooting for. But now that you know your risk tolerance, you can put those Step 3 figures into context. If the numbers say you should take X amount of risk, but you know you’re the risk-averse type, then you should ratchet down a notch or 42 Step 2: Know Your Risk Tolerance two. If the numbers produce a kind of steady Eddie portfolio that won’t quench your thirst for some upside vim, you’ve got to build a little more risk into the picture in a way that will meet that need without threaten-ing your overall plan. We’re not talking major surgery here. Just some tweaking around the edges to make sure you’ve got the right plan for you. ... - tailieumienphi.vn