Invest Wisely and Sleep Well at Night

If you want to sleep well even when markets are volatile, you must invest according to your own risk tolerance. It’s one of the most important factors in investing. Also important, however, is that risk tolerance isn’t something you set and forget. It can change over time because of personal experiences or evolving life situations.

Market cycle reaction

At first, you guess how you’ll react to a bear market. Years later, you’ve lived through one or multiple market cycles. As investment experience grows, risk tolerance can change in either direction. One person can realize that market drops are too much to cope with and decide to reduce holdings in higher-risk equities. Another person may feel reassured that declines are followed by recoveries and move some fixed-income investments to equities.

Shortening time horizon

Say that a 45-year-old parent has education savings heavily invested in equities for a child five years away from attending university. And a 55-year old investor is also heavily invested in equities, hoping to retire well before 65. For many years these portfolios suited each individual’s risk tolerance. But today, how well do they sleep knowing one major market downturn could jeopardize their plans? Tolerance to risk can change as time horizon shortens, usually signalling a shift toward more conservative investments.

Changes in financial status

If someone’s financial picture improves or suffers, tolerance to risk may be affected. Say that a recently divorced individual pays spousal and child support. With reduced nest egg contributions, this person may be less able to withstand portfolio losses. Lower-risk investments may be needed.

Or take someone who receives a significant windfall – an inheritance or property sale. In such a situation, investor personality determines any change in investments. One investor may allocate funds to more aggressive investments, knowing there’s a large base for long-term support. Another could make their portfolio more conservative, changing the focus to wealth preservation.

Respect your comfort zone

Whenever there’s a change in risk tolerance, it must be warranted. Imagine a couple approaching retirement who sacrificed large sums to help out family members. They’re thinking about investing in higher-risk equities beyond their risk tolerance to boost retirement savings. But that means going from comfort zone to danger zone – they could end up in worse shape. The couple is better off saving more, postponing retirement, earning income during retirement, or modifying their retirement lifestyle.

When to talk to us

It’s important to talk to us whenever your risk tolerance changes so we can adjust your investments. If you become more tolerant of risk, you’ll have new investment opportunities. If you become less tolerant of risk, we’ll ensure that you meet your investment goals while enjoying peace of mind.

This material was prepared for and published on behalf of your financial advisor and is intended only for clients resident in the jurisdiction(s) where their representative is registered. This material is provided solely for informational and educational purposes and is not to be construed as an offer or solicitation for the sale or purchase of any securities or as providing individual investment, tax or legal advice. Consult your professional advisor(s) prior to acting on the basis of this material. Insurance products are available through advisors registered with applicable insurance regulators. Individual equities are available only through representatives of Assante Capital Management Ltd. In considering any particular investment, please remember that past performance is no guarantee of future performance. Although this material has been compiled from sources believed to be reliable, we cannot guarantee its accuracy or completeness. All opinions expressed and data provided herein are subject to change without notice. Neither CI Assante Wealth Management or its dealer subsidiaries Assante Capital Management Ltd. and Assante Financial Management Ltd., nor their affiliates or their respective officers, directors, employees or advisors are responsible in any way for any damages or losses of any kind whatsoever in respect of the use of this material. CI Assante Wealth Management is a registered business name of Assante Wealth Management (Canada) Ltd. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Assante Financial Management Ltd. is a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation (excluding Quebec). © 2022 CI Assante Wealth Management. All rights reserved.