Understanding Your Investment Risk

Risk is defined as the proportionate degree of gain or loss of any specific investment or portfolio.

Risk is generally separated into three categories:

1. Conservative—least amount of risk

2. Moderate—somewhat conservative and somewhat riskier

3. Aggressive—the riskiest strategies with riskier investments.

Generally speaking, more aggressive (higher risk) investments may deliver higher average returns over time. However, this is offset by a higher potential for loss of principal compared to safer, more conservative investments. That, of course, means the opposite is true as well—the less risky the investment, the lower the risk of loss of principal and of course the lower potential for reward (lower return).

Everybody has a tolerance for risk equal to the three categories of risk: conservative, moderate, or aggressive.

Your tolerance for risk impacts how you will react when an investment moves from up to down during its volatility cycle.

• How do you know your risk tolerance?

• How much risk can you stand before you panic and make bad money decisions?

You can determine your risk indicator, a number that signifies where you fall on a risk tolerance scale. You do this by answering a few key questions.Your risk indicator will help you understand how to approach investment choices.

Let’s take a few minutes to determine your risk level. How much volatility, up and down in the value of an investment, can you stand? Let’s start by determining your risk tolerance. Go to https://www.envoyfinancial.com/education and click Determine Your Risk Tolerance.

If your investments mirror your tolerance for risk, it is more likely that you will persevere and create that sustainable portfolio previously described.

If you want to know more about your risk tolerance, contact an Envoy specialist who can help answer your questions.

View Risk Definitions for a more detailed explanation on the types of risk.

Risk Definitions

CONSERVATIVE

Stability of principal with little or no price volatility

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A conservative portfolio is very low in risk and typically has very low returns. This investor wants to minimize risk and is comfortable with lower returns in order to maintain stability.

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MODERATELY CONSERVATIVE

Safety of principal with minimal price volatility

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A moderately conservative portfolio allows a small degree of risk in order to see some returns. This investor is willing to accept lower returns in order to receive minimal losses.

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MODERATE

Moderate growth with some probability of price volatility or loss of principal to achieve potentially higher returns

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A moderate portfolio may have periods of moderate risk, but can also achieve potentially higher returns. This investor is willing to accept modest risks to seek higher long-term returns and typically values reducing risks and enhancing returns equally.

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MODERATE AGGRESSIVE

Higher than average growth potential with increased probability of price volatility or loss of principal to achieve potentially higher returns

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A moderately aggressive portfolio has higher risk and can produce larger losses but can also produce higher long-term returns. This investor accepts the possibility of large losses in order to potentially receive higher-long term returns.

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AGGRESSIVE

High growth potential with high probability of price volatility or loss of principal to achieve potentially higher returns

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An aggressive portfolio is high risk and can produce high returns, but also has equal potential for bigger losses. This investor wants to maximize long-term returns, and is willing to risk extreme ups and downs in account value.

I’m Getting Ready to Retire. What Should I do with My Money in My Retirement Account?

Are you retired or about to retire and wondering what you should do with the funds in your retirement account? Here are a few options:

Option 1: Depending on your balance, you can keep the funds invested in your retirement plan. If you like the funds you’re investing in, it makes sense to just leave the account where it is. However, you can no longer contribute to your retirement account once you are separated from employment.

Option 2: You can rollover the funds to an IRA with Envoy Financial or another financial institution that handles IRAs. This will give you more control over your investment options and saves on taxes as rollovers are tax free until you take a distribution from the IRA.

Option 3: You can take a partial or full distribution of the account. This is one of the least desirable options. If you do this, 20% will automatically be withheld from your funds withdrawn as a prepayment of federal taxes. If you are under the age of 59.5, you may owe an additional 10% early withdrawal penalty on anything not rolled over.

If you have other questions and would like to speak with an advisor, we’d love to help lead you in the right direction.

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