Risk-Appropriate Investing

How much risk can you manage?

Each 401k participant has a unique Risk Capacity or ability to manage risk. Many investors know they need to take risk to earn a return. Others may wish to shun risk as they may view themselves a casualty of a fallen market — never wishing to go there again. The reality however, is when investors take the right risks – investing in a globally diversified portfolio of passively managed, style-pure indexes, they significantly improve their chances of a brighter financial future, or winning what academics frequently call “the loser’s game.” The key is to know which risks are worth taking, and which risks should be avoided.

This is where an IFA 401k can prove its worth to participants — and sponsors., too.

The primary question an investor needs to ask and answer is “How much risk is right for them in accordance with their age, state, time horizon, liquidity needs, appetite for risk and investing knowledge. Take a simple survey to see. The analysis of the answers to this question aggregate into a number called Risk Capacity — it’s the measure of risk that’s right for an investor. Each risk capacity number correlates to a risk exposure. When an individual properly  invests their portfolio in accordance with their risk capacity, they avail themselves of the greatest opportunity to maximize their returns for the amount of risk they take.

While this method is very straightforward, it is equally underutilized. An IFA 401k can change that — helping participants identify their risk capacity and making it easy to invest in the appropriate Index Portfolio, and offering your participants opportunity for a brighter financial future.

IFA’s 10 risk-appropriate Index portfolios closely align with the results of the risk capacity survey. Other tools can also match participants with a proper and prudent portfolio. IFA 401k’s Quick Guide to Portfolio Selection does the hard work for investors by matching them with the right portfolio based on age and appetite for risk.  Which portfolio is right for you?

The table below shows the selection sheet for the IFA Index Portfolios. To view details of any portfolio, simply click on a colored, numbered button.