If you want to expand your investment portfolio but don’t know where to start, there are two words you need to know: level of risk. CFO Nils Larsen is no stranger to helping clients determine their own risk levels and using that knowledge to craft a smart investment strategy. Whether you’re trying to eliminate debt or plan for a great retirement, follow Nils Larsen’s advice to create an investment strategy that fits your goals.
Establish your level of risk
Risk level simply means the level of risk you are willing to take to achieve the desired outcome. Often in finance, higher risk can lead to greater profits. But not all clients are suited to a high-risk, high-return portfolio, according to Nils Larsen, director.
A high-risk investment is not a wise choice for someone who is already in debt or hoping to start a new business. But someone with a high net worth or high disposable income may be able to take on greater risk in their investment portfolio. Nils Larsen notes that understanding a client’s own feelings about financial risk is also crucial. This ensures that they are comfortable with the level of risk of their investments.
The level of risk is not only defined by the qualities of an individual, but also by external factors. Stock market fluctuations and world events can affect riskier investments. Knowledge of the economic and geopolitical climate is therefore an important element when assessing risks.
“It is important for a financial portfolio manager to consider the personality of the individual, as well as possible major market fluctuations ahead, when creating and managing the portfolio.” Larsen says.
How your level of risk affects investment strategies
Once an individual and a manager have worked together to determine the right level of risk, an investment strategy will begin to fall into place. A client willing to take on more financial risk would be more likely to have equity funds, stocks, or exchange-traded funds (ETFs) in their portfolio. A more risk averse client would instead turn to more stable options like bonds and bond funds.
Determine your short-term goals
Determining the level of risk is only the start of developing your investment strategy. Nils Larsen, manager of many financial portfolios, says it’s crucial to decide on short-term and long-term goals. These should be realistic and as specific as possible – it helps to write them down so that the objective is clear to all parties.
Short-term goals can include anything from creating an emergency fund, paying off something specific and small (a car or a new refrigerator, for example), or paying off debt on a regular basis. . Establishing a routine to achieve these goals is great for developing better financial habits. It will also help clients better position themselves to build their investment portfolios.
For short-term goals, a client will likely rely on a basic savings account. There are also tricks that can help reduce costs, Larsen explains, like cutting down on unnecessary extra expenses like a daily latte – which can add up to thousands of dollars over time!
Set long-term goals
Long-term goals require dedication and can benefit from professional help, notes Larsen, manager. Retirement funds, paying off a massive mortgage or debt, or saving for a child’s college tuition can all be long-term financial goals. That’s where your financial portfolio comes in. IRAs and 401k accounts, bonds, and more. can all work in your favor over time to have a significant impact on your long-term goals.
Even for long-term goals that seem quite distant, like retirement, it’s a good idea to start working with a financial planner sooner than you think. Beyond the lump sum amount of money you’ll need for retirement, a financial planner can help you account for inflation and taxes beyond managing your investment portfolio. Nils Larsen, Director, says a good financial planner will advise on the success of a client’s strategy and suggest low or high risk adjustments that will help someone achieve their financial goals.
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