Understand the words on your statement
Have you ever looked at the first page of your statement and wondered what "Investment Objective" and "Risk Tolerance" mean? These are essentially investment guidelines that you have chosen, guidelines that we follow when we help you select investments. We use your investment objective (income, growth and income, growth or trading/speculation) to help you clarify your investment ideas and identify your risk tolerance. This is the level of risk of loss that you are willing and able to tolerate to help you achieve your investment goals.
All investments involve risks
Although all investments involve risk, including the potential loss of principal, some securities (such as stocks) involve more risk than other securities. Higher risk investments can potentially yield higher returns, but also greater losses. The higher your risk tolerance, the more you can invest in higher-risk securities that offer the opportunity for higher returns. While there is no foolproof strategy to ensure you make the right investments for you, our financial advisors are ready to help you make informed decisions.
Defining your investment objective and risk tolerance
In general, investment objectives cover a spectrum with "income" investors generally holding portfolios that emphasize current income, and "growth" investors holding portfolios that emphasize capital growth with minimal attention to current income. Likewise, risk tolerances start with 'Conservative' and move to 'Moderate' and then to 'Aggressive'. At every step, an investor is willing to accept more risk.
Below we provide basic definitions for the different investment objectives and risk tolerances:
Income investors
Growth and income investors
Growth investors
Trading and speculative investors
Check your current investment objective and risk tolerance
Income investors
Income investors seek maximum income given their risk tolerance and are willing to forgo capital and income growth to pursue a higher level of current income.
- Risk tolerance conservative.Conservative income investors seek the maximum income consistent with a modest degree of risk. They are willing to accept a lower level of income in exchange for lower risk. Stocks and high-yield bonds typically won't make up a large percentage of the account.
- Moderate risk tolerance.Moderate income investors try to balance potential risk with increased income potential. Stocks and high-yield bonds typically make up a percentage of the account.
- Risk tolerance aggressive.Aggressive income investors seek significant levels of income and, because of their long-term horizons or other factors, use more aggressive, higher-risk strategies that can offer higher potential income. Stocks and high-yield bonds can make up a significant percentage of the bill.
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Growth and income investors
Growth and income investors seek ongoing income, as well as income and capital appreciation over time. These investors are willing to give up some current income to provide for potential future growth.
- Risk tolerance conservative.Conservative growth and income investors seek maximum growth and income consistent with a relatively modest degree of risk. They are willing to accept a lower potential return in exchange for a lower-risk investment. Stocks will typically make up a percentage of the account and usually pay dividends.
- Moderate risk tolerance.Moderate growth and income investors try to balance potential risks with higher potential growth and income. Stocks usually make up a significant portion of the account and will usually pay dividends.
- Risk tolerance aggressive.Aggressive growth and income investors seek significant levels of growth and income, and their long-term horizon and/or other factors allow them to pursue more aggressive, higher-risk strategies that can deliver higher potential returns. Stocks are usually the main asset in the account and usually pay dividends.
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Growth investors
Growth investors aren't after account revenue; their main goal is capital growth.
- Risk tolerance conservative.Conservative growth investors seek maximum growth accompanied by relatively modest risk. They are willing to accept lower potential returns in exchange for lower risk. Stocks will usually make up a significant portion of the account.
- Moderate risk tolerance.Moderate growth investors try to balance potential risk with their goal of higher potential growth. Stocks are usually the most important asset in the account.
- Risk tolerance aggressive.Aggressive growth investors seek significant levels of growth and, because of their long-term horizons or other factors, use more aggressive, higher-risk strategies that can deliver higher potential returns. Shares can amount to up to 100% of the account.
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Trading and speculative investors
Trading and speculative investors seek maximum returns through a wide range of investment strategies, which generally involve a high level of risk, including the possibility of significant loss of principal.
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Check your current investment objective and risk tolerance
If you believe that your current investment objective or risk tolerance is not suitable for you - or if your statement does not reflect this information - please contact your financial advisor to discuss what types of investments are suitable for you.
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