How much risk are you taking?

   Most investors focus on the returns their investments have generated and pay little attention to how much risk is involved to get those returns. During prolonged market rallies, even more conservative investors tend to shift their focus from risk management to higher returns. This can be a dangerous mistake when it comes to your retirement funds.

   One of the more popular choices in the Thrift Savings Plan (TSP) is the C Fund. The C fund is designed to replicate the S&P 500 index. The S&P 500 is comprised of 500 of the largest US based companies. Many people believe large companies are safer, and therefore they are not taking too much risk by investing in the C fund. Unfortunately, that is not the case.

   Our firm has recently implemented Riskalyze, which is one of the most recognized and comprehensive investment risk assessment  tools available to financial planners. According to Riskalyze, the C Fund has a risk score of 78 (out of 100). What does this mean? In simple terms, it means investors are risking a loss of 18% of their investment over the next 6 months. We like to think in terms of annual losses, so we double that to 36%. This loss number is in line with the loss of 37% in 2008. While past performance does not ensure future results, it does give us an idea of how much risk we may be taking when investing. The real question is whether a risk score of 78 is too high.

   This really depends. Everyone is different. Our brains are wired differently in how we perceive risk. For some, an investment scoring 78 is far too high; for others it may not be high enough. Finding investments that match our specific individual risk scores makes it more likely we will stick to that investment over the long-run. Riskalyze offers a test that generates your own personal risk score based on a series of return versus risk scenarios.

   Just as important as your individual risk score, however, is your personal ability to take risk. Again, each person's situation is unique and depends on a wide range of factors. Matching an investment to your risk preference and situation is part of the comprehensive service we offer our clients.  Want to know how much risk you're taking and whether it is too much? We will evaluate at your next annual review. Contact us to schedule an appointment sooner, if you would like, at (757) 223-9898. 
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Phone: (757)223-9898
Michael R. Mason, CFP®, CLU®, ChFC®, Kenneth T. Mason, RICP®, and John M. Mason, CFP® offer securities & advisory services through Centaurus Financial, Inc., Member FINRA and SIPC, a Registered Investment Advisor. Mason & Associates, LLC and Centaurus Financial, Inc. are not affiliated companies. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in the following states: Arizona, California, Colorado, Florida, Hawaii, Indiana, Maryland, North Carolina, Pennsylvania, and Virginia.

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