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Investment Risks

Investment Risk Perspective

Risk is a factor in any investment decision that you make. Your tolerance for risk is something that you will want to consider when you make decisions alongside your trusted financial professional. Your risk tolerance is balanced against your time horizon, meaning the time between now and when you anticipate needing your money.

But is it possible to avoid a loss? No, not completely, but you can take steps to manage that risk when investing. This is where conversations about your risk tolerance are critical.

What would you rather have, $500 right now or a 50% chance at $2,000? Many people go for the $2,000 and rightfully so. Since you have a 50/50 chance, a decision tree shows the $2,000 answer carries a potential value of $1,000.

But let’s add a few zeros and see if that changes your perspective.

What would you rather have, $50,000 right now or a 50% chance at $200,000? The decision tree says the opportunity to win $200,000 has the highest potential value. But in reality, many people second-guess that decision because $50,000 is a lot of money.

Remember, there is no correct answer to these questions. They simply help you better understand the concept of risk.

Investment risk can be managed, but it can’t be eliminated entirely. All investments carry some level of risk. And in general, the greater the risk an investment carries, the higher its potential return.

Risk happens, but don’t let it get in the way of your dreams. Ultimately, these concerns should only serve to inform you and the questions that you ask the financial professional you are working with. The conversation should include your questions about the risks for each strategy presented as well as questions from your professional about the investment goals you have and the aspirations you hope to realize.

To further discuss this article or learn more about CapSouth Wealth Management and the services we provide, contact us at 800.929.1001 or www.capsouthwm.com/contact or visit our website at www.CapSouthWM.com

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with CapSouth Wealth Management. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm.  CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

Save Early & Let Time Work for You

As a young investor, you have a powerful ally on your side: time. When you start investing and saving in your twenties or thirties for retirement, you can put it to work for you.

The power of compounding. Many people underestimate it, so it is worth illustrating. Let’s take a look using a hypothetical 5% rate of return.

How does it work? A simplified example goes like this: Let’s assume a hypothetical 5% rate of return on a principal of $100. After a year, you earn 5% interest, or $5. Another year, another 5%, which adds $5.25 this time. In the third year, your 5% interest earned amounts to $5.51, bringing your balance to $115.76. The more money you deposit, the greater that 5% returns. Let’s look at another hypothetical example. If you were to start with a $1,000 principal in an account that earns 5% interest per year, and contribute $1,000 a year to the account, you would end up with a total of $7,078.20 after five years. That’s a total of $1,078.20 earned in compound interest from $6,000 in contributions. That compounding continues, even if you stop making deposits. All you really need to do is let that money stay put.1

The earlier you start, the greater the compounding potential. If you’re investing for retirement in your twenties, you may gain an advantage over someone who waits to invest until his or her thirties.

Even if you start early & then stop, you may be in a better position than those who begin later. What if you contribute $5,000 to a retirement account yearly starting at age 25 and then stop at age 35 – with no new money going into the account for the next 30 years. That is hardly ideal. Yet, should it happen, you still might come out ahead of someone who begins saving for retirement later.

To learn more about CapSouth Wealth Management, visit our website at www.CapSouthWM.com or www.capsouthwm.com/services/investment-wealth-management/

1. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

Ready for your Portfolio to Make a Difference?

Interest in making an impact with one’s investments has grown in recent years, which means many investors may have an increased interest in environmentally or socially focused investments as well. In fact, impact investments account for $502 billion of managed investments worldwide, with 58% held in North America. Curious to learn more about impact investing? Read on.1

What Are Impact Investments?

Impact investments are made with a measurable or tangible goal for social change in mind. From there, the criteria may differ depending on your own values and focuses. For example, you may choose to invest in a company that commits to planting a certain number of trees per year or another organization that provides resources to school districts in low-income communities.

You may hear other phrases used in conjunction with impact investing, such as socially responsible investing (SRI) or environmental, social, and governance investing (ESG). These investment models follow more specific criteria and guidelines such as ethical business practices, environmental conservation, and local community impact.2

Impact Investments, SRI and ESG investments have certain risks based on the fact that the criteria exclude securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.

Setting Expectations

Making a difference in the world is only one consideration with impact investing. In a 2020 survey of impact investors, 88% indicated that the financial performance of their investments was either in line with or outperformed their expectations.3

Tips For Impact Investing

Here are a few concepts to keep in mind with Impact Investing:

  • Your values: What specific areas of impact are you hoping to make with your investments? Are you focused on sustainability, social justice, your religion, or another area? Deciding what you’re looking to accomplish can help narrow your focus.
  • Types of investments: There are a variety of investments that are structured to help pursue your goals when it comes to Impact Investing. As you define your values, the types of investments may become clearer.
  • Impact reports: Impact reports are designed to provide information that breaks down how the company is making a difference and what measurable goals they’re following. Impact reports are one factor to consider as you evaluate opportunities.

Impact investing can help keep your investments aligned with your personal beliefs. As you consider whether this choice may be appropriate for you, don’t hesitate to reach out. We may be able to provide some information or identify some resources that you may find insightful.

To learn more about CapSouth Wealth Management visit our website at www.capsouthwm.com or www.capsouthwm.com/services/financial-estate-planning/

1. TheGIIN.org, April 2019
2. CFAinstitute.org, April 2021
3. TheGIIN.org, 2020

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

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