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Step 10: Risk Capacity

Risk Capacity 75: Dark Blue Moderately Aggressive: Younger professionals with new careers or young families beginning to save for their children’s college would likely score near the risk capacity 75. These individuals generally possess an understanding about the sources of stock market returns and are willing to take moderately aggressive risks to capture the returns associated with increased volatility. These investors understand the long-term benefits of the multi-factor model of investing and are aware that they are entitled to earn returns commensurate with the risks they take. They are also prone to some thrill seeking, demonstrating their penchant for risk and adventure. Although they have a higher risk capacity than others, they require about 25% fixed income to soften their portfolio’s volatility. They may need some access to a small percentage of liquid assets to acquire a house or car, or to accommodate the unforeseen events that unfold in life. This risk capacity is suitable for investors who have at least 13 years before needing approximately 20% of their investments and are willing to accept a higher degree of volatility in order to achieve higher portfolio growth potential. Risk exposures associated with this level of risk capacity lost about 44% of their value over a 1-year, 4-month period in 2007 to 2009, and from March 2009 through December 2013, they saw a 138% increase, with an annual expected return of 11.55% (based on the last 50 years). At the end of Step 11, you can see the risk and return data for Index Portfolio 75.

Index Funds: The 12-Step Recovery Program for Active Investors  

This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...

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