Investment Strategy & Risk Management

Why shouldn't you invest the same way throughout your entire life?

Because your priorities, risk level, and financial goals change as you get older.

Why is time considered your greatest asset when you're young?

Because you have more time to recover from market downturns and benefit from long-term growth.

Why can younger investors usually take more investment risk?

They have many years before retirement, giving their investments time to recover from market declines.

What becomes more important as you get closer to retirement?

Preserving your wealth rather than maximizing growth.

What is wealth preservation?

Protecting the money you've already accumulated from large losses.

What is wealth accumulation?

Growing your wealth over time through saving and investing.

According to the guideline in your notes, how do you estimate the percentage of bonds in your portfolio?

Round your age to the nearest 5 and subtract 10.

After calculating your bond percentage, where does the rest of your portfolio go?

Into equities (stocks).

As you age, how should your portfolio generally change?

It should gradually shift toward more preservation and less risk.

Why does your risk tolerance matter?

Your investment strategy should be one you can stick with, even during market downturns.

What is concentration risk?

Having too much of your portfolio invested in one company, investment, or asset.

Why is concentration risk dangerous?

If that one investment performs poorly, it can significantly hurt your overall portfolio.

If your employer gives you company stock, what should you ask yourself?

Is it becoming too large a percentage of my portfolio, and do I believe in the company's long-term prospects?

What three things should you understand before building an investment portfolio?

Your risks, how close you are to retirement, and your risk tolerance.

What factors influence how your portfolio should be allocated?

Your age, time until retirement, financial goals, and risk tolerance.

What is the overall goal of an investment strategy?

To match your investments to your age, goals, and comfort with risk.