Asset Allocation Guide: How much risk do you need?
The first two posts in our series on asset allocation focused on investors’ ability and willingness to take risk. Today, we turn our attention to the third of our three tests, the need to take risk.
The need to take risk is determined by the rate of return required to achieve financial objectives. The greater the rate of return needed to achieve one’s financial objective, the more risks with equities (and/or small and value stocks) one needs to take.
A critical part of the process is differentiating between real needs and desires.