Key points
- Your comfort with risk shapes the mix of investments in your portfolio.
- Higher levels of investment risk may generate higher returns.
- Spread your money across different investments within each asset class.
Assess risk tolerance, asset allocation & diversification
Far from retirement
Whether you are just starting to invest for retirement, or have a substantial amount set aside, the foundation of investing is understanding your comfort with risk, adjusting the mix of assets in your portfolio and diversifying your investments within it.
Assessing your risk tolerance
In general, investments that have potential to generate higher returns are also more risky. Only you can decide how comfortable you are with that trade-off. The more time you have to save, the more likely it is that undertaking a little higher risk can pay off.
To determine tolerance for risk, Ameriprise financial advisors ask investors to answer five questions.
Take the Risk Tolerance QuizMost investors fall into one of the following categories
Conservative
You are willing to accept the lowest return potential, lowest return variability and the lowest fluctuation in account value
in exchange for lower risk.
Moderately conservative
You are willing to accept a relatively low return potential, relatively low return variability and relatively low fluctuation
in account value in exchange for a below average amount of risk.
Moderate
You are willing to accept an average amount of risk in exchange for average return potential, average return variability
and average fluctuation in account value.
Moderately aggressive
You are willing to accept an above average amount of risk in exchange for a relatively high return potential, relatively
high return variability and relatively high fluctuation in account value.
Aggressive
You are willing to accept the highest amount of risk in exchange for the highest return potential, the highest return variability
and the highest fluctuation in account value.
Based on the answers you gave, you fall into the following category:
Conservative
You are willing to accept the lowest return potential, lowest return variability and the lowest fluctuation in account
value in exchange for lower risk.
Moderately conservative
You are willing to accept a relatively low return potential, relatively low return variability and relatively low fluctuation
in account value in exchange for a below average amount of risk.
Moderate
You are willing to accept an average amount of risk in exchange for average return potential, average return variability
and average fluctuation in account value.
Moderately aggressive
You are willing to accept an above average amount of risk in exchange for a relatively high return potential, relatively
high return variability and relatively high fluctuation in account value.
Aggressive
You are willing to accept the highest amount of risk in exchange for the highest return potential, the highest return
variability and the highest fluctuation in account value.
Revising your asset allocation
Once you understand your risk tolerance, you can construct your asset allocation — the mix of investments in your portfolio. As you approach retirement, you'll want to adjust your asset allocation to help protect you from market risk while retaining potential for growth.
What may be a good asset allocation for you?
Enter information about your investment objectives, personal financial profile and risk tolerance to review possibilities.
Diversifying your portfolio
Once you select your asset allocation, you need to select the investments within it. The goal of diversification is to invest in a range of cash, bonds and stocks, or mutual funds spread over many unrelated companies, industries and regions. Diversification is an important tool to help reduce risk in your portfolio. While some of your investments may go down, those losses may be offset by gains in other investments.
When retirement is far away, you have many years to grow your assets. Determining your risk tolerance, constructing an asset allocation and diversifying your underlying investments can be a complex process. An Ameriprise financial advisor can help you develop a long-term retirement investing strategy, and monitor the progress of your portfolio on an ongoing basis.
The asset allocation calculator is intended to serve as an informational tool only, and should not be construed as legal, investment or tax advice. Please consult with a tax advisor or an investment professional about your unique circumstances. Asset allocation strategy does not assure or guarantee better performance and does not eliminate the risk of investment losses.
Diversification helps you spread risk throughout your portfolio, so investments that do poorly may be balanced by others that do relatively better. Diversification is not a guarantee of overall portfolio profit or protection against loss.
Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.
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