The Right Personality for taking Risk

Do you have the right personality to take large risks?

Personality and the ability to accept risk are a big deal.

For those whose, short-term fluctuations and asset values create stress and perhaps the need to seek safety taking too much risk is a mistake.

The moments of bad decisions are usually caused by fear or greed and those moments are usually the worst time to make decisions.

When we view with the benefit of hindsight later on the ability to take risk should be thought of as well if someone has an Investment portfolio worth 10 million dollars and they temporarily have a decline to say six million dollars they're probably still going to be okay as long as their patient.

For someone with a $1000000 portfolio who temporarily experiences a decline in value to 600000 the same proportional decline, it may put their retirement plan in jeopardy because their lifestyle expenses are larger relative to the size of the asset base that they have to draw on. The wealthier investor has the ability to assume more risk should they choose to do so.

Ironically, the more wealth ability an investor has to assume the risk, the less there is a need to do so. Money is an interesting dynamic.

I use that term, in general, quite a bit because there are always exceptions in differences to any assumption we can make. For example, in general, when it comes to women they tend to be more conservative than men when it comes to risk-taking. This is driven by a desire for women to have more certainty as to their lifetime income.

For women, their biggest concern normal is running out of money during their lifetime.

Declines in portfolio value even if temporary create doubts that can lead to poor decision-making.

The ideal portfolio will still contain some volatile assets like stocks but not such a large proportion that the overall portfolio valued decline will cause doubts about the future.

Implementing a time segmentation approach to retirement income planning can also go a long way to creating confidence. lastly, it's important to understand

the difference between temporary loss of value and permanent impairment of capital or permanent loss.

Since the year 2002, the stock market has lost 50% of its value 2 times and over 30% more recently when the covid-19 pandemic caused an economic slowdown.

As of the publishing date of this article, the stock market has recovered the losses from all of those events and is at record highs.

These losses were temporary and the best course of action was to stay invested during these events or better yet take advantage of them by investing more.

Permanent impairment of capital