Investment Strategy – Olympic Level, Ep #33

Justin WallerUncategorized

Let’s face it, sometimes personal finance can seem like a foreign language. However, understanding your finances is essential to living the life you want. On this episode of Money Mile, we’re going to level up your understanding of investment management.

If you feel like you need more of a basic tutorial on investments, check out episode 25 first to get the basics down.

In this episode, you’ll learn about risk tolerance and using model portfolios to manage your investing. Press play to reframe your thinking on investing.

You will want to hear this episode if you are interested in…

  • Understanding risk tolerance [2:22]
  • Using model portfolios to help you with your investments [5:37]
  • Homework [9:54]

What’s your risk tolerance?

Everyone’s risk tolerance level varies on a scale between conservative and aggressive.

Even if you fall on the conservative side of the scale, your risk tolerance should increase the farther out you are planning for. In the same way that you prepare for a sprint distance and Ironman triathlon differently, you’ll invest differently based on your time frame. The money you need for retirement will be invested differently than the money you need to pay your bills next month.

Applying your risk tolerance level to retirement

If you are retiring soon, remember that you will still have many decades to draw that money down. Just because you are on the cusp of retirement doesn’t mean you should suddenly change the way you invest.

One way to plan for an upcoming retirement is to ensure that you have two years of cash on hand since you can’t afford for these funds to fluctuate in value. The next three years should be invested in an income-oriented portfolio. Everything else should be invested in a stock-based portfolio.

The way the funds are invested will be based on your risk tolerance. You can refer to a model portfolio to help you understand how best to invest your savings.

How a model portfolio can help you invest

A model portfolio is a prescribed investment allocation based on your risk tolerance. These models are broken down into the particular investment types you should include in your portfolio.

While these models are a helpful guide, it is important to remember that you are the one implementing the model. So, if you choose to base your investments on a model it is still up to you to make it work for you by customizing your portfolio to fit your needs. Many companies use these models directly and have many people’s portfolios based on them.

Make sure to check out the attached models to compare your own portfolio. Is your investment portfolio aligned with your risk tolerance? Listen in to hear what you should do to take action to improve your portfolio.

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