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Step 10: Risk Capacity

Risk Capacity 50: Sea Green Moderate: Individuals in their late-40s to mid-50s with growing families and careers in full swing would likely score close to a 50 on a risk capacity survey. These investors may have children graduating from high school or college with younger children still at home. Some may be eyeing retirement, making plans for future activities, hobbies or travel. Such individuals would have about 8 years before they would need to withdraw approximately 20% or more of their investments and would be willing to accept a moderate degree of volatility in order to achieve moderate portfolio growth. This capacity for risk is appropriate for those who can stomach a moderate amount of risk in their portfolios and have the emotional fortitude to close their eyes to the market’s highs and lows, choosing instead to focus on the long-term historical return, which is the expected return. The risk exposure that would be appropriate for this capacity would have lost about 30% during the worst 1-year, 4-month period from November 2007 to February 2009, and gained 84% from March 2009 through December 2013, but has an expected return of 9.72% per year (based on the last 50 years). Such investors would need or want to invest in stock market equities with an eye toward fueling long-term growth, but would remain mindful of their need to dampen volatility given their window to retirement. At the end of Step 11, you can see the risk and return data for Index Portfolio 50.

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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