Risk

What does risk mean?

In investing, risk refers to the degree of uncertainty about the return on an investment and the possibility that an investor may lose a portion or all of the principal invested. Risk tolerance is an investor’s ability and willingness to endure market price fluctuation and potential loss of principal in exchange for the chance of future potential returns. 

In other words, it’s how comfortable you are with the idea of possibly losing money in the short term in pursuit of a higher return over the long run.

Why does risk matter? 

All investments carry some degree of risk, and there’s no guarantee that any specific investment strategy will be successful. Knowing your risk tolerance helps in developing an investment strategy. Your personal risk tolerance can be influenced by several factors, including your age, investment goals, income, time horizon, and investment experience.

For example, a 25-year-old and a 55-year-old typically will not have the same investing strategy for their 401(k) account. Someone with a longer time horizon until retirement may be able to take on greater risk for potentially higher returns, while someone closer to retirement might prefer lower-risk investments that aim to preserve their capital.

How does risk work? 

While every investor's situation is unique, portfolios are generally structured across a spectrum of risk categories. Three common categories are:

• Aggressive: These portfolios typically seek long-term capital appreciation and are willing to accept significant price fluctuations. They commonly have a higher allocation to equities (stocks) and a lower allocation to fixed income (bonds).

• Moderate: These portfolios seek a balance between growth and income. They often utilize a diversified* mix of asset classes to participate in market gains while attempting to mitigate some downside volatility.

• Conservative: These portfolios often target retirees or those close to retirement age and include lower-volatility assets like U.S. Treasuries and money markets.

*Diversification does not ensure a profit or protect against loss.

Some retirement providers, like Human Interest, provide a selection of model portfolios¹ that can be customized to align with personal investment goals, including risk tolerance. 

If you are unsure where you stand, tools like a risk tolerance questionnaire can help you evaluate your tolerance for market volatility and select a portfolio that fits your needs.

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1 - Model Portfolios are available to plans that select Human Interest Advisors (HIA) as the investment adviser. HIA is a Registered Investment Adviser and subsidiary of Human Interest Inc. For more information on HIA's investment advisory services, please visit http://www.humaninterest.com/hia/.

Human Interest Inc. is an affordable, full-service 401(k) and 403(b) provider that seeks to make it easy for small and medium-sized businesses to assist their employees with investing for retirement. For more information, please visit humaninterest.com. Investment Advisory services are provided through Human Interest Advisors LLC (HIA) to plans that select HIA as the investment adviser. HIA is a Registered Investment Adviser and subsidiary of Human Interest Inc. For more information on our investment advisory services, please visit https://humaninterest.com/hia/.

The investment approaches discussed do not assure a positive return or a positive investment experience. There are numerous ways of approaching investing, and not all are appropriate for every individual