Now is a good time to review your portfolio with regard to your ability and willingness to absorb financial risk. It should mirror your risk profile. Of course, these days more and more people are embracing the cult of performance. But the most important thing for a investor to be concerned about isn't return or beating the market. The trick is to mix and match the major financial market assets to create a well-diversified portfolio with the highest expected return for the amount of risk you are comfortable taking.
Risk is a rich word with many shades of meaning.
It hints at dangers to be avoided, such as smoking or dashing across an eight-lane highway. But the word also prompts stirring images of entrepreneurs starting their own companies, immigrants moving to the U.S. to begin a new life, and snowboarders riding the slopes with abandon. It means different things to different people, and that should be reflected in investment portfolios. Only then should they adjust their asset allocations. How you handled last week's downturn is an indicator of your tolerance for risk One way to get a handle on your risk tolerance is to take a test offered online by most mutual-fund companies.