Circle Roundup: Investment Risk & the “Sleep at Night” Factor

Another successful Women’s Circle rounded out our financial understanding. This time, the Circle focused on tackling investment risk in a way that is optimal to reach long-term goals while still feeling comfortable with your everyday choices.

Market volatility can feel hard to experience emotionally, even potentially keeping you up worrying at night.

Mosaic Financial Partners - Emotional components of investment risk - blog image

This can be overwhelming.

Risk is taken every time an investment is made, but what is the right level of risk for you, as an individual?

This post rounds up a few key tools, terms, and takeaways shared by Circle participants that can help bring you clarity.



1. Gauge your Risk Tolerance

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Investing is a financial decision, but you can’t ignore the emotional components that come along with it.

Circle participants completed a complimentary risk tolerance questionnaire, and then received a report assessing individual risk tolerance. This helped participants understand whether their head and gut align when it comes to taking risks.

Some participants had surprising results, originally assuming they could take on less risk than their assessment indicated. Others found that their answers aligned with what they were originally thinking.

There are different ways to frame risk: some equate risk to opportunity and possible rewards, while others might think of risk as the possibility of consequences.

Mosaic works with risk tolerance testing leader FinaMetrica to help measure the comfort (or discomfort) levels of our clients when taking on investment risk.

This reporting tool uncovers where you fit on the investment risk tolerance spectrum.


Better understand your personal risk tolerance – sign up for your own report now!




2. Understand Market Cycles

Not all risks are treated equal.

The understanding of and education regarding different types of risks will have an impact on your tolerance for them. It is important to understand that the market cycles by design. One Circle participant called this “finding your sea legs.”

Market swings can happen for a whole host of reasons, like a breaking news story on a leading company or industry, a new law, an order from a regulatory agency, or a macroeconomic event. Fluctuations can impact individual sectors or the market as a whole.

Understanding the degree of upswings and the degree of downswings common in the day-to-day trading world will help one to hold on and not sell investments out of fear.


3. Keep Expectations in Check

You’ll want to keep your expectations in check for any endeavor into investing.

Not every stock will soar or even meet your expectations. A good financial advisor can help you design a portfolio based on your needs, preferences, and realities, and can serve as a touchpoint to keep your head level while you stay invested. A great financial advisor will help you keep your expectations in check and your life in good financial health.


4. Factor in Your Time Horizon

Remember: you’re in it for the long haul.

Just how “long” you have depends on your individual time horizon. Your time horizon is the amount of time you expect to hold an investment before it is liquidated.

Are you investing for an intermediate-term goal, or for a long-term goal, like building a nest egg for retirement? How many years do you have before retirement? Factor in your age, health, and career status.


5. Be Realistic About Your Rate of Return

The phrase “rate of return” corresponds to the earnings an asset generates in excess of its cost. This encompasses any change in value, whether your investment gains or loses value during the specified time period.

A “real rate of return” is the annual percentage return realized and adjusted for price changes due to external factors, like inflation.


6. Hedge against Inflation

It's good to plan ahead, anticipating possible outcomes. And inflation is a given. There are assets you can select to help provide protection against the decreased value of a currency, such as an investment with an intrinsic value (think oil, natural gas, gold, commercial real estate), known as hard assets, which are typically negatively correlated to both stocks and bonds.  In addition, diversifying your investments with global holdings can hedge your portfolio against domestic economic cycles. Read more about diversification here.


Mosaic Financial Partners - Investment Risk blog image - nomao-saeki

Every reward involves risk.

The Circle wrapped up by sharing experiences with different types of risks, even touching on the emotional connotation of the word. Some Circle participants shared how they made decisions that continue to impact their portfolios today, both positively and negatively, and the group discussed how those experiences have framed thinking for future plans.

Being realistic about rate of return and the amount of time that you have to achieve your goal is of utmost importance. The more time you have, the more risk you can conceptually take. Without an abundance of time, being conservative is prudent. Regardless, participants agreed that the first step is understanding that every reward involves risk, and the second is paying attention to your personal risk tolerance.

As Mark Zuckerberg said in Facebook’s SEC filing, “building great things means taking risks.”

If we are proactive, educate ourselves, and plan ahead, we can be in it for the long haul while sleeping well at night.


Our next series of Women's Circles - one for the East Bay, and one for SF - will focus on practical considerations for giving, just in time for the holidays.

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Topics: Investments, Women's Circles