If you’re interested in expanding your investment portfolio, but don’t know where to begin, there are two words you should know: risk level. Financial Manager Nils Larsen is no stranger to helping clients figure out their own risk levels and using these learnings to build a smart investment strategy. Whether you’re trying to eliminate your debt or plan for a great retirement, follow Nils Larsen’s tips on creating an investment strategy that fits your goals.
Establishing Your Risk Level
Risk level simply means how much risk you’re willing to take on for the desired outcome. Oftentimes, in finance, greater risk can lead to greater profits. But not every client is suited for a high-risk, high-reward portfolio, according to Nils Larsen, manager.
A high-risk investment isn’t a wise choice for someone already in debt or hoping to start a new business. But a person with a high net worth or disposable income may be able to take on greater risk in their investment portfolio. Nils Larsen notes that it’s crucial to understand a client’s own feelings towards financial risk as well. This ensures they’re comfortable with the risk level in their investments.
Risk level is also not only defined by an individual’s qualities, but by external factors as well. Stock market fluctuations and global events can have an effect on riskier investments, so ascertaining the economic and geopolitical climate is an important element when evaluating risk.
“It’s important for a financial portfolio manager to take the individual’s personality, as well as possible upcoming major market swings, into account when creating and managing the portfolio,” Larsen says.
How Your Risk Level Affects Investment Strategies
Once an individual and manager work together to determine the right risk level, an investment strategy will start to come together. A client open to taking on more financial risk would be more likely to have equity funds, equities, or exchange-traded funds (ETFs) in their portfolio. A more risk-averse client would instead lean towards more stable options like bonds and bond funds.
Figuring Out Your Short-Term Goals
Ascertaining risk level is only the beginning of figuring out your investment strategy. Nils Larsen, manager of many financial portfolios, says it’s crucial to decide on short-term and long-term goals. These should be realistic and as specific as possible — it helps to write them out so that the goal is clear for all parties.
Short-term goals can include anything from creating an emergency fund, paying off something specific and small (a car or new fridge, for example), or regular debt payments. Establishing a routine when tackling these goals is great for forming better financial habits. It will also help put clients in a better position to build out their investment portfolios.
For short-term goals, a client will likely rely on a basic savings account. There are also tricks that can help with cost-saving, Larsen explains, such as cutting back on unnecessary extra spending like a daily latte — which can add up to thousands of dollars over time!
Establishing Long-Term Goals
Long-term goals require dedication and can benefit from the help of a professional, notes Larsen, manager. Retirement funds, paying off a mortgage or massive debt, or saving for a child’s tuition can all fall under long-term financial goals. This is where your financial portfolio comes into play. IRAs and 401k accounts, bonds, and more can all work in your favor over time to make a significant impact on your long-term goals.
Even for long-term goals that seem quite far away, such as retirement, it’s smart to begin working with a financial planner earlier than you’d think. Beyond the lump sum of money you’ll want for your retirement, a financial planner can help you account for inflation and taxes beyond managing your investment portfolio. Nils Larsen, manager, says a good financial planner will advise on how successful a client’s strategy is and offer low or high-risk-level adjustments that will help someone meet their financial goals.
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