MONEYMATTERS: Assessing risk can be, well, risky

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By Marianne D. Fishler The Daily Record Newswire Life is full of risks. Usually we can identify risk and measure it. In our personal lives, it is deciding whether to speed up or slow down when confronted with a yellow light, crossing the street quickly to avoid a bus or being the first to say "I love you." At work, it is the decision of whether to start a new venture, adding a new employee before you think the company can support it or making a major career move. But what about the risk in your investment portfolio? Or the risk that you are taking that you might not achieve your long-term financial goals? Or the risk of not having goals? The method of assessing this type of risk is not as clear. As I write this, the Dow Jones industrial average is hovering around 13,000 -- a level we haven't seen in years. The gross domestic product of the U.S. has increased for 10 consecutive quarters, which means (and this may come as a shock), that the recession has been over for quite some time. Money is flowing into U.S. markets -- a reward for outperforming its global counterparts. I am starting to hear people say that given the recent market rally, they are ready to put more money into the markets and take more risk. When pressed for a reason, the responses vary around a central theme that they feel more likely now to be rewarded with positive returns than in recent months, or even years. They sense that the risk of losing money in the market has decreased. Assessing risk in this context can be a little tricky -- and dangerous. You may think you have a diversified, low-risk portfolio because you own some bonds, some individual stocks and a few mutual funds. Contrary to popular opinion, bonds, and bond funds in particular, are risky assets. It's all a matter of degree. If you can't make complete sense out of what you own, why you own it and how it all works together, then you need to spend more time with your advisor. Or get a new one. The real questions to ask are: What do I need or want this money to do for me and my family? Are my goals realistic given the size of the portfolio today, the time horizon, and present and future income and expense needs? How much of a return do I need to achieve that goal? How much sleep will I lose if I start seeing losses on my investment statement? Only when you have the answers to these questions can you begin to assess the amount of risk you need and the volatility you can stand in your portfolio. Building an efficient portfolio that allows you to achieve your goals while taking the least amount of risk that you need requires more research and analysis than most non-advisor individuals can muster. Yes, the stock market does look attractive right now, but remember the best time to have gotten in was when it didn't. This is no time to go it alone. ---------- Marianne D. Fishler, CFP®, is president and co-founder of Baltimore-based Foundry Wealth Advisors LLC. Investment Advisory Services are offered through Donnelly Steen & Co. d/b/a Foundry Wealth Advisors, a U.S. SEC Registered Investment Advisor, 1201 N. Orange St., Wilmington, Del. Securities are offered through Coastal Equities Inc., member FINRA/SPIC, 602 Main St., Cincinnati, Ohio. Foundry Wealth Advisors LLC is a separate company from Donnelly Steen & Co. and Coastal Equities Inc. Contact Marianne Fishler at marianne.fishler@foundrywealth.com or 443-692-8833. Published: Tue, Mar 6, 2012