If you’re a trivia buff, chances are your specialty is not market history. But if it were, think about this: the five worst days in stock market history and the five best days have all been after 2000.
So what does this mean?
The stock market is highly volatile, and if the plan is to maximize your investment opportunities, it helps to know your tolerance for risk. It’s really a balancing act between how much you’re willing to risk making a profit vs. a loss on your investment. A higher rate of return usually requires higher risk strategies.
“The amount of risk you take should depend on your financial goals, time horizon and risk tolerance,” says Mark Kull, a Northwestern Mutual financial advisor in Louisville, Kentucky. That’s where the guidance of a financial professional comes in handy.”
The advisor you work with should help you complete an investor profile – a series of hypothetical questions that assess how comfortable you are with financial risk and inform your decisions about the mix of investment tools that might be right for you.
“Most people’s risk tolerance varies throughout the course of their lives,” says Kull. “So it’s helpful to revisit your investor profile every few years and ideally to ensure you’re making the best choices for the particular life stage you’re at.”
And, when it comes to those roller coaster markets, Kull notes, “It’s good to be aware of the big picture (what’s happening in the marketplace), but stay focused on your long-term financial security plan. This will help you take emotion out of the equation so you can stay on course.”
For additional resources, check out these hands on tools from Rutgers University: