7 Investment Experts on Risk (And Why It Matters to You)

risk averse or risk taking

One of the most important aspects of your investment journey is your attitude towards risk.

On one side of the spectrum are the risk-averse investors. These individuals are cautious, tentative and would rather avoid risk, even if it means achieving lower returns. On the other side of the spectrum are the risk-taking investors. These individuals are more adventurous and will take larger risks in the pursuit of higher returns.

Here at Property Moose, we try to provide a range of property investment opportunities, all of which you can invest in for just £10. By doing so, we hope to provide our members with the tools they need to build well-balanced, diversified portfolios.

We asked a range of investment experts whether investors should be risk-averse or risk-taking. One of the key points in almost every answer is that risk is an incredibly personal decision, and it must be one you’re comfortable with.

Andrew Gardiner, CEO and Founder of Property Moose says, “When investing, you need to be entirely comfortable with your chosen level of risk. If the fear of loss will keep you up at night, you might be more suited to simple, cash-based accounts, which offer lower interest rates and lower levels of risk. If you’re happy to accept risk in the pursuit of higher growth, have the time and the cool-headedness to ride out short-term fluctuations, riskier investments have the potential to be incredibly rewarding. For investors preoccupied with their fear of loss, panic selling during temporary periods of volatility could lead to permanent portfolio damage. That’s why it’s crucial for investors to create a portfolio which is tailored to their risk attitude. Building a well-balanced, diversified portfolio can help you reduce your level of risk and mitigate market unpredictability. By investing in assets which react differently during times of economic change, losses from one part of your portfolio can be counterbalanced by profits in another. Under this premise, it’s less likely that you’ll need to sell at a loss and you have a far greater chance of achieving better returns.”

John F. Knolle, Financial Planner at SARANAP Wealth Advisors says, “Risk is a very personal thing. Bottom line is, risk should balance with tolerance and the return needed to achieve one’s objectives.  There’s no reason for an investor to seek higher risk investments yielding a greater return if this return is more than what is required to meet the investor’s goals.  To the contrary, an investor seeking lower risk investments that yield too low of a return to achieve their goals needs to consider taking on more risk, especially if their risk tolerance allows for higher risk investments. The caveat to this reasoning is that an investor should never take on risk beyond that with which they are comfortable.  A downturn in the market resulting in losses exceeding their comfort level could result in panicked selling at the worst possible time.  In these cases, investors should adjust their savings rate and their retirement objectives, both when to retire and how much to spend in retirement, so the lower risk investment can meet their revised goals.”

Matt Hylland, Investment Advisor at Hylland Capital Management says, “The old saying is: Take risk while you are young, because you have plenty of time to recover from losses or allow investment values to recover. In general, I agree. Historically, an investment in stocks has produced higher returns than bonds. However, stock investments may have decades with poor performance, making them a potentially poor investment for those who don’t have the time or ability to let their investments run through their cycles. More important than your age is your risk tolerance. If the thought of seeing your 401(k) drop 50% is enough to make you lose sleep, you should probably reduce your risk by adding in bonds or a cash component to your asset allocation. Staying invested in a portfolio with slightly less risk, but one you are comfortable holding through a stock market decline will return far more over time than a risky portfolio that forces you to sell during stock market sell-offs. A general rule is to allocate your investments to an “age in bonds” model. If you are 50 years old, you should have roughly 50% of your investments in bonds, while the other half is invested in equities. If the market declines, you have a portion of your investments in much safer, less volatile bonds, while your equity portion of your portfolio can produce better returns over time.”

Paul Koger, Positions Trader and Founder at Foxy Trades says, “In regards to taking risk while investing, it should really depend on your age. The younger you are, the more risk tolerant you can be. When still young, you have time to live through various crises and recover from whatever financial pitfalls that come your way. The closer you get towards retirement, the more risk averse you should become, as you are getting closer to needing the funds for everyday survival. Those are the general guidelines, although when investing for retirement, the general condition should be to avoid risky investments, which can wipe out years of positive return in a single day.”

Robert R. Johnson, President and CEO of the American College of Financial Services says, “Risk tolerance is about both the ability and willingness of someone to bear risk. Young people have the ability to bear risk because they have a long time horizon. But, often they don’t have the willingness to bear risk because of a fear of market downturns…Older investors should exercise more caution. I would contend that someone who is 25 years from retirement should have very little, if any, bond exposure in their retirement portfolio. Over a 25-year period, the odds are very strong that a diversified portfolio of common stocks will beat a diversified portfolio of bonds, and by a substantial margin. A short time period is much more problematic. Investors must protect themselves against sequence of returns risk -that is that [the] portfolio value falls dramatically just prior to retirement.”

Sarah Paige Andrews of Davenport Laroche says, “An investor’s investing strategy depends greatly upon their tolerance for risk. This risk tolerance is heavily influenced by investment goals, which tend to differ between age groups. Risk aversion is common among older investors who are nearing retirement and need to protect their savings. Obviously, it is reversed for younger investors, who can afford [the] time to recover any losses incurred from investing in risky investments.”

Dennis McNamara, Financial Planner at Lighthouse Financial Advisors, Inc, says, “For a younger investor (like me), it is crucial to embrace risk and volatility and pursue investment strategies with higher potential returns. While an almost-30-year-old may consider themselves “conservative” or “risk-averse” when it comes to their personal finances, they also have to see the other side of the coin: what is the risk of not investing aggressive enough? Running out of money in retirement! Younger investors just entering the investing arena should give careful consideration to all of their options. However, evidence-based investing would indicate that purchasing a low-fee, passively managed index fund would be a good starting place. It is recommended that older individuals lean more towards risk-aversion and place a higher percentage of their assets in bonds…Again, what is the risk of not doing this? Having a portfolio with too much volatility that gets impacted dramatically by market conditions, thereby impacting total retirement assets.”

*Quotes were attained via HARO.

To learn more about how you can diversify your portfolio with Property Moose, click here.

By Jenna Kamal

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Disclaimer and Legals

Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.

Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).

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Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. Property Moose is a trading name of DFI Financial Services Ltd which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).