When I speak to new clients about risk tolerance, it’s usually because they have decided to become serious about their finances. They want to build a strong financial plan by creating a diversified p📖ortfolio with a healthy stock allocation for the first time. I focus on helping to identify what stock risks matter, how to minimize them, and which “risks” to ignore.

What I'm Telling My Clients

To accomplish long-term financial goals and build wealth, clients澳洲幸运5官方开奖结果体彩网: should invest in something beyond cash and CDs. Domestic stocks have historically returned 9.7% over the past 20 years. Thus, it’s important to incorporate them into a portfolio’s growth 🐽engine. 

However, many new investors perceive stocks as risky. It’s essential to help them recognize that not all risks are equal and that there’s a difference between permanent capital loss and short-term澳洲幸运5官方开奖结果体彩网: volatility. While stocks can struggle in the short term (with an average 14% intra-year decline), these downfalls are typically temporary. Patience is key to earning strong, long-term returns.

It’s also critical to discuss that while short-term losses are♚ common, the true risk is pe🌜rmanent capital loss. With time, one can recover from 14%, 20%, and even 50% or more stock market declines, but you can’t recover from zero.

To help clients feel more comfortable with risk, you can start by creating a financial plan. Doing so helps clients understand when they’ll need money from their portfolio. This can help avoid them selling stocks during a market decline and can prevent permanent capital loss.

The Bottom Line

Talking to new clients about risk tolerance is essential to setting them on the path to success. By educating them on the difference between short-term market volatility and the risk of permanent capital loss, we help them build the confidence to stay invested through market fluctuations. Understanding that stocks are key to long-term growth and wealth building while also learning strategies to minimize risk and avoid investing mistakes allows clients to stay focused on their goals without letting fear dictate their decisions.