Investing your money in a qualified plan can be overwhelming if you’re unsure which fund portfolios to pick. If you’re feeling stuck, take our risk profile questionnaire to treat risk-a-phobia.
The attached questionnaire will help you make informed choices when looking over available investment options by helping you to address two important questions:
When will you need to start withdrawing from your savings?
How comfortable do you feel knowing that short-term declines could happen in your account?
These two questions help determine whether you should choose an investment approach that is less exposed to risk or one that has a higher risk. Higher risk exposure means your account could have some bigger gains, but on the flip side, could experience times of larger losses. Determining your comfort with market swings is a big factor in choosing the right investment portfolios for you.
Suppose you invested $1,000 dollars in a qualified plan and after 2 months you see that the account value has fallen to $800?
While no one likes to see their savings decline, would you be comfortable with that temporary loss, if it meant that in the next two months your value might rise to $1,300?
Each person feels differently about the risk, and unfortunately, there are no guarantees with investment gains or losses. However, some funds are designed to operate with more volatility over time than others. Learning how you tolerate risk will help you feel empowered to combat risk-a-phobia and move forward with investing.
Let’s go over a couple investing concepts:
Vary your asset classes.
Asset class simply refers to how a fund is grouped, based on its marketplace behavior, and I bet you can name the three biggest: stocks, bonds, and cash.
Let’s say that you invest money in three stock accounts and two bond funds.
If your stocks are experiencing losses, your bonds will likely not experience losses at the same time, and vice versa.
By choosing different asset classes, you can help manage those potential times of loss by offsetting them with gains.
Don’t put all your eggs in one basket.
Now, take it one step further. You’re already invested in different asset classes, but now you can choose different strategies within the class - that’s called diversification. Let’s look closer at those two bond funds.
You’ve selected two bond funds – one could be a corporate bond, while the other is a government bond.
By choosing two different types of bonds, you are taking an extra step of diversification so if one fund experiences a loss, the other fund could offset with gains.
Now refer to the image on the questionnaire, attached to the right of this page, that shows a breakdown of classes and it will show you the risk that goes along with each one.
Now that you’re armed with diversification knowledge, you’re ready to learn your risk tolerance! When completing the questionnaire, select the answer to each question that best fits you. Then put the number of points for your answer in the “My Score” space below. Based on your total points, you will discover what type of investor you are.
You’ve taken the first step in battling risk-a-phobia, and now you’re ready to invest. Please consult your financial professional to receive more detailed information about the funds options available to you.
Cosmo Insurance Agency is an independent insurance agency serving surrounding communities in New Jersey. Cosmo keeps its promise to assure an efficient and creative approach to the services we offer. Each of our clients experience a personalized and long-term relationship with us. Our New Jersey based team of health brokers guides our clients in helping them choose the most cost-effective options. By incorporating the latest in technology-based tools and laws on healthcare, employee benefits, life insurance and finance, we keep our clients up-to-date with the plans that encompass all of their needs, whether it is individual or group insurance.
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