Key points
- The foundation of your investing strategy is your comfort with risk.
- Most people's risk tolerance is lowest when they are in retirement.
- Adjust asset allocation to deliver both income and potential growth.
- Spread your money across different investments in each asset class.
Re-assess risk tolerance, asset allocation & diversification
In retirement
As your focus shifts from saving to generating income from your savings, you'll want to re-assess your comfort with risk, adjust the mix of assets in your portfolio and select a range of investments in different asset classes.
Re-assessing your risk tolerance
Once you shift from saving for retirement to drawing on your savings, your comfort with risk may be lower than it was during your working life. However tempting it may be to avoid risk completely, you still need to have some assets in growth-oriented investments so your money has the opportunity to grow faster than inflation and to last throughout retirement.
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. In retirement, your asset allocation needs to generate income from your savings while growing your overall portfolio.
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 choose the investments within it. The goal of diversification is to invest in a range of cash, bonds and stocks, or mutual funds, so that your assets are 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.
Determining your risk tolerance, constructing an asset allocation and diversifying your underlying investments can be a complex process. This is especially true in retirement, when it's critical to generate income while also growing your assets. An Ameriprise financial advisor can help you understand and apply these concepts, and monitor the progress of your portfolio on an ongoing basis to ensure it continues to meet your needs.
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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