InFocus Newsletter: Dealing With Risk

July 2016

Financial Tips for Millennials

As with each new generation in America, Millennials have their own unique struggles. They face a new world of excessive college debt and searching for the right job to kick-off their career. With all the ups and downs to come, advisor Stuart Vick Smith joined KVUE to give Millennials some starting pointers for financial success.

KVUE: Financial Tips for Millennials

RISK AND JOY ...

AND THE SWEET SMELL OF HAY

Most people think of themselves either as risk-averse or risk-tolerant. Risk tolerance can be situational, however. We should be risk-tolerant only when we are likely to be highly compensated for taking the risk. And while risk tolerance is frequently discussed in relation to investments, that compensation can actually take many forms. And compensation is almost never merely about investment returns. After all, the best financial planning is less about money than it is about what we want money to do for us.

While Wealth Advisor Kristin Poole frequently discusses risk with her clients, the issues of "what we want money to do for us" and balancing risks recently came up for her personally. After a 15-year hiatus, she needed to analyze whether the physical risk of riding horses and the financial risk of owning one were worthy ones for her to take. This article looks at the thoughtful three-question process she followed in deciding to return to the sport she loves, a process that integrates values and quality of life into the consideration of which risks are worth taking.

"We should be risk-tolerant only when we are likely to be highly compensated for taking the risk."

SPEAKING THE LANGUAGE OF RISK

Carl Richards' popular sketches aim to bring simplicity to a complex financial world. Done

with a Sharpie, they speak in black and white. Yet as Richards writes, the subject of risk is often colored gray. "When I say 'risk' and you say 'risk,' ch ances are high we don't mean the same thing." A big reason for this, says Richards, is because the words risk and uncertainty are often used interchangeably. When it comes to our financial matters, however, we need to recognize that we aren't talking about the same thing.

More on risk and uncertainty:

> Make a Plan on How to Handle Risk, Then Stick to It

A look at what can happen when we don't follow our own rules.

> For True Freedom, Learn to Deal With Uncertainty

Learn to deal with uncertainty. That's the definition of true freedom.

> Getting Comfortable With Change

Don't keep the status quo if there's a better alternative.

THE REALITY OF INVESTMENT RISK

While some investments are riskier than others, all investments still carry some sort of risk. In this article, the Financial Industry Regulatory Authority (FINRA) explains what exactly risk is when it comes to investments; touches on different types of risk such as market, business and concentration risks; and looks at how time can be your friend or foe when it comes to risk. FINRA also provides an overview of ways to manage risk through asset allocation and diversification.

More from FINRA on risk:

> Market Risk: What You Don't Know Can Hurt You

> Security Futures: Know Your Risks, or Risk Your Future

WHAT'S YOUR RISK TOLERANCE? TAKE THE QUIZ!

If you were on a game show, would you be more likely to take a guaranteed $1,000 in cash or take a 25 percent chance at winning $10,000? When you hear the word risk, what comes to mind first: uncertainty or opportunity? Would your friends describe you as a gambler or someone who avoids risk? Those are a few questions from a quiz put together by professors from Virginia Tech and the University of Georgia to help investors get an idea of their risk tolerance.

Of course, a quiz such as this only offers a starting point. Many factors go into investors' overall risk tolerance, including their age, level of savings, career stability, family situation and emotional responses to market swings. Continue to work with your trusted advisor to determine that your ability, willingness and need to take risk are up to date as you move toward your short- and long-term goals.