Understanding Investment Risk

I’d like to share my take on an insightful article provided by Fidelity Investments that highlights an important foundation of successful investing: understanding your risk tolerance and risk capacity.

Before you start investing, it’s essential to have a clear understanding of what both of these mean:

Risk tolerance refers to your willingness to take on risk

Risk capacity is the amount of risk you can afford to take. Factors such as your age, income level, investment knowledge, and time horizon typically influence your risk capacity.

Investments that offer the potential for higher returns generally involve more risk, which can mean greater fluctuations and volatility along the way. If you prefer a smoother ride with less volatility, more defensive investments may provide additional stability—but they may not generate returns high enough to reach your long-term goals.

Every type of investment carries some level of risk. With stocks, market-moving headlines or even a single influential social media post can impact prices. With bonds, changing economic conditions and interest rates can cause prices to rise or fall. Building your knowledge in investments and various products will help build investing confidence.

As Warren Buffett once said:

“The important thing is to know what you know and know what you don’t know.”

Your personal risk tolerance plays a major role in shaping your investment strategy:

• Aggressive investors pursue higher-risk growth strategies in search of greater returns and must be prepared to withstand more significant market fluctuations.

• Moderate investors typically balance their portfolios with a diversified mix of generally lower-risk investments and select higher-risk investments.

• Conservative investors prioritize capital preservation and may focus more on fixed income, cash, and money market accounts, accepting lower potential returns in exchange for stability.

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Bottom line: When it comes to risk, the decision is ultimately yours. Your comfort level with risk may differ from other investors—even those with similar goals and timelines. What matters most is building a strategy that aligns with your personal financial objectives and risk profile.

Article provided by Fidelity Investments

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This blog was prepared by Alison Cannell, for the benefit of Alison Cannell, Financial Advisor with Cannell Wealth Management Inc., a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this blog comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability.

The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities. Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the Fund Fact sheet or prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.