Broker Check

Make the Best Short-Term Decisions to Protect Long-Term Results

| August 01, 2018
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Clients occasionally ask: Why do you use a 6-month time-frame to measure the comfort levels and a portfolio’s 95% probability range?

Our thesis is that investing a client in alignment with their Risk Number will empower them to be fearless, and to remain invested for the long-term, delivering better results in terms of achieving their financial and personal life goals.

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It all stems from our definition of Risk Tolerance: “How far can a portfolio fall, within a fixed period of time, before the investor will capitulate and make an emotionally-charged poor investing decision?”

Riskalyze utilizes the six-month time-frame because all of their research points to a simple truth: while investors should be focused on the long term, they react to risk in the short term, and emotional reactions to risk are the number one killers of long-term financial goals and results. Riskalyze incorporates decades of behavioral economics research, and the culmination of their studies has confirmed that one year is just too long for a client to “hang in there” if they are in the midst of volatile markets or worried about their downside risk.

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It is said that a journey of a thousand miles begins with one step, but it’s also true that nobody invests for twenty years towards retirement. Psychologically, clients are investing for a large number of much shorter time periods. And the short term decisions they make along the way will have a profound long term impact.

Put another way, one cannot travel to a destination without knowing where they are starting from, and how they’re going to get there. What good is an itinerary from Los Angeles to New York without the knowledge that the traveler is psychologically unable to board an airplane?

Far too many advisors respond to that kind of client by effectively saying “look, everybody flies…you’ll just need to get on the plane.” Effective advisors are able to show the client their tradeoffs. Traveling to New York by train is possible; it’ll just take longer to get there. Or perhaps the client can proactively accept more risk than they initially wanted. Either way, Weston Banks has created invaluable alignment between you and your portfolio through a quantified risk tolerance evaluation.


Please email your thoughts and questions to [email protected] or give us a call at 919-783-8500. Follow us on social media for more interesting content or visit our Weston Banks Wealth Partners website to see how we will work together for significance.

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