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Step 10: Risk Capacity

Risk Capacity 25: Ice Blue Conservative: Investors in their mid-70s and enjoying their golden years would likely score close to a 25 on a risk capacity survey. They may be engaged in the lives of their grandchildren and regularly enjoying hobbies. A risk capacity level of 25 is suitable for these investors who have at least 5 years before needing approximately 20% of their investments and are willing to accept a conservative degree of risk for incremental appreciation with emphasis on capital preservation. At this stage in life, these individuals are less likely willing and able to take on risk. These individuals would shun stock market risk in exchange for a smoother ride through the markets during their later years of retirement. A portfolio of risk that would be appropriate for this conservative investor lost about 14% of its value during the worst period of decline in November 2007 through February 2009, and it delivered a 40.6% return from March 2009 through December 2013, with an expected annual return of 7.63% (based on the last 50 years). At the end of Step 11, the risk and return data for Index Portfolio 25 is provided.

An Investor’s Role In Risk Capacity When investors actively participate in the investment process by conducting the self-examination required to establish a risk capacity score, they better position themselves to weather appropriate levels of market volatility, thereby enhancing their ability to experience a high degree of investment success.

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