Hi, my name is Bob Brooks and you're watching the prudent money channel. Listen, I appreciate so much, you taking the time to invest into some education. One of the biggest problems in this country is the fact that we go through 12 years of school, some go to college, we go through all these hours of education and not one hour is spent education, educating you on how money works. And then we get out and we get a job, we get into the world, and we're trying to figure out this whole money thing. And I truly believe the difference between those who are successful long term, and when it comes to money, are going to be those who invest into education I love that's what we're doing here, fatality network. It's all about education.

It's not about talking about what the mainstream wants you to know. It's talking about what you need to know they're not telling you, and a lot of talk a lot about risk on the printed money radio show risk in all areas and how to manage it. And I specifically talk about risk because there's not enough education on how to protect yourself from risk. And one of the things that I find in talking to people and counseling people is that they've been with an advisor They really doesn't get them that really doesn't understand how risk works. And that's what I want to talk about today. How do you identify that?

And how do you start to figure out really what your risk level is, you know, risk drives, everything obviously drives the amount of gain and loss that you go through, whether you achieve your goals, your emotional state of being, and we'll talk a lot about emotions, because I think what has happened is that you go through the the.com bubble that burst between 2000 and 2002. And then the financial crisis 2007 to 2009, has created financial trauma. And people look at risk a lot different today. And I just don't think that the advisor community is really getting that. You know, what fails in the advisor process is the fact that you sit down and you have this this very small, this small conversation about risk when it needs to be a detailed conversation. They take a cookie cutter approach to risk and that is the old on a scale from one to 10.

Tell me what your risk level is. The client says, Well, I'm a six. And advisor says, Okay, I understand that and he moves on. The problem with that is, is it was 60 you may be different than a six to the advisor. I was talking to somebody at investment conference just this week. And he was talking about how his, his client was upset about some losses.

And he goes, you know, we went through the risk category and I found out he was a six, I'm thinking to myself don't even know what that means. And so it's a cookie cutter approach to risk theoretical versus emotional. You know, I always talk about on the print money radio show, the fact that there's a lot of textbook answers out there, you know, for instance, what you know, how much of a an emergency account do you need? Well, you need six months worth of savings. Well, that's a textbook answer. You need to know what really, really applies to the individual, their particular situation.

And when it talks about risk, it's about their emotional state, how they deal with loss, you got to know that and then there's a line in the sand is never established. So what I mean by that is if I'm talking to Somebody about risk I want to know, you know, things go south, things go bad. Where Where do we pull out? Where do we adjust things? Where do we make changes. And that's not a conversation that most advisors are willing to have with a client because they don't want to talk about things going south, they want to talk about growing the investments, but it's a very important part of the conversation.

Overcomplicated rating system. They take it to the extreme and they talk about risks from a technical terms and they and they don't connect with the client, and they don't really get a good idea of how they feel not going. Not wanting to miss the sale versus taking the time wanting to sell versus taking the time. This is where you run into the salesperson and this is the person that you I truly believe that you really want to avoid when it comes to working with financial advisors because they most of the time if they are real concerned with getting to the sale, they're really concerned with selling the product. They're not concerned with what's really what's what's working best in your best interest. Of course, they're talking very little about risk because they want to get on to promoting the product.

And then the real reason that I think that the failure in the advisor process is they don't really have a strategy. You know, we talked about Plan A versus Plan B, when it comes to investing, Plan A is when the market goes up. But what's your plan B if the market goes down? And if they don't have it, they're not going to talk about it. So they're really the they focus on two things when it comes to risk diversification but diversification in itself? Yes, that is a way to, to protect your portfolio against risk.

But it's not a means to an end. It's not the it's going to go really take care of that risk strategy, which is the fact that they don't have a strategy is the is the fact that it's really rarely talked about. The biggest downside of getting this wrong with the advisor in the in the investor or the client is that it's the right risk level versus the wrong strategy. And let me explain what I mean by that is that you have somebody who's got a healthy view of risk. They can take the loss, they can endure some of the volatility. So they're they've they've got a good outlook on risk.

Now the adviser gets the risk level wrong and puts him in the wrong strategy. They lose a lot of money. And now they're they what was a healthy look at risk to healthy understanding of risk. Now they have no desire to take risk. And that kind of taints their decision making going forward. That to me, is the biggest downside to getting that conversation wrong.

So I've taken in this has just been through talking to people for a number of years, and in broken wrist down into five different categories of aggressive than growth, the moderate, and conservative, then what I call and this is actually a new category, the safe money category. And we're going to go through the the characteristics of these different risk categories, and you start to think which one really fits you. We'll start with the aggressive investor and I gotta tell you, there's not as many people today In this category, I think that the market volatility is the level of fear the level of uncertainty as we look forward in this country has keeps people a little bit out of this aggressive investor category. But the characteristics once maximum growth is speculative likes making big bets is fine with law losses is kind of a gamblers instinct. And people ask me all the time, they'll say, what's the difference between investing and gambling?

Well, this is this can be a little bit on the gambling side right here, as you start talking about the aggressive investor. Now what an aggressive investor should consider is that they're going to have to frequent trading a lot of buying and selling, if you're going to be aggressive, you have to have an exit strategy. So if something goes south on you, you want to know when you're going to sell ahead of time, and then the biggest thing that an aggressive investor should consider they need to control that sense of greed because that can really affect decision making. Now the growth investor they're comfortable with loss, but They view everything on a long term basis. And they want want to do as good or better than the market so that if the s&p 500 is their benchmark, they want to be performing as good as the s&p 500.

Ideally, they want to perform better than that. And that's kind of their bogey. That's what they're looking at. Now, what should they consider use stop losses, same thing as an exit strategy. They got to know that if if the market starts to drop, where would they get out? Where would they exit?

Now, here's the problem. With a growth investor, they typically don't pay attention to what's happening, because they look at everything long term, they kind of fit into this buy and hold type of mentality. And they they look at their statements every once in a while, you really got to pay more intention. If you're taking that kind of risk. Then there's the moderate investor. Now, I don't have any statistics to back this up, but it's been my experience.

This is where the vast majority of people and investors fall into this category. They're comfortable with loss up to Point. They want a very balanced approach in their investments. They're more concerned with achieving financial goals they have and they have a realistic look at loss, they understand that there's going to be ups and downs and they can emotionally tolerate it. Now, what they should consider is everything be goal driven. And what I mean by that is that this is where a not I think a financial plan with goals is important for everybody.

But they need to know I need to be averaging a certain rate of return, and achieving a certain amount of growth each year or on average, to get me to my retirement goal. And so they're driven by those goals, not so much driven by what the markets doing. So for instance, if the market made 25%, they needed to make 6% to stay on track, they made seven, they're going to be content with that. There's not going to be there's not going to be a problem with that they're going to be they're very content because they're staying with their goals. So everything goal driven and Plan B approach. I think that that's extremely important to a plan A when the markets going up.

But what's their strategy when the markets going down that plan B approaches, so very important. And then there's the conservative investor characteristics of the conservative investor comfortable with a small amount of risk. This is one of the things that I see that advisors will get wrong, when they're constructing a portfolio for somebody who's conservative, they state still take too much risk, you want to have a very small exposure to risk. Once a well diversified approach, much like the moderate investor, you know, once a five to 6% return, maybe a four to 6% return. Now, a lot of things conservative investors should consider they should check progress quarterly. Now, most investment statements come out on a monthly basis, as you know, and that can create a little too much emotion.

So I like to tell people if you're a very conservative type of investor, look at it on a quarterly basis. We have three different models. averaged together, a plan B approach very important to know when to reduce risk. And then low expectations for return. You know, here's the, here's the problem is that, you know, we take risk for reason, right? We take risk to to grow what we have to work with the limited resources we have, and make it grow faster by taking more risk.

Well, they got to realize that if they're growing money at a lower rate of return, is that going to get them to their to their goals, and then remove all expectation conflicts that this is an important one. I have a risk survey. In fact, you can go take it at prudent money calm. If you take the risk survey, I send you back a risk analysis telling you where you fit in this at least five categories. And what I'm looking for is conflict. I'm looking for where they say one thing but they really mean another.

So for instance, they could say that they don't want to take a lot of risk. They're very risk averse. They Want to say was safe investments? And then they The next question says, if the market went up 20% and you only earned five, would you be upset? Or would you be contented, and then they quit. They'd be upset.

So they want to make these big returns, but they don't want to take risk. You got to be able to settle that conflict and figure out what's behind that. You can see kind of where these conversations are very important to be having with an advisor to really get you settled in on your expectations and understand what I call your prudent money, DNA when it comes to risk. So remove those conflicts, make sure that that's out out of the way. Then there's the safe money investor. This is a phrase that I coined a couple of years ago because I found when talking to people, that that people are this risk averse today.

They don't want to take a lot of risk characteristics cannot handle losses. One the litmus test when I'm talking to people, I want to know how they're going to handle a monthly statement loss, how they're gonna view that how they how do they look at it from a loss of dollars, Loss of percentage loss, I want to know how they can emotionally handle it. And if you're a safe money investor, you cannot handle losses, satisfied with a lower growth. You know, I was working with somebody that had done a very good job saving money and investing over the over the span of their career. And they don't want to take any risk at all. But they had enough money that they could put it in these guaranteed investments and they could pull enough income to to live off of it.

Now, it would have been nice to see them take that money and make it work a little bit harder for them, but to fit their emotional state. When it comes to risk. They were able to do that take any and I've always said if you had the luxury of not taking risk, they don't take it. And most people don't have that luxury and unfortunately, what they should consider carefully select safe money investments. There's a big industry out there driven by the insurance industry, and there are a lot of bad guaranteed type products. You've got to know that There's a lot of them.

So you want to make sure you're choosing the best ones, there are a subset of good ones, that can work really well. So make sure that you understand what you're getting into. And that it works. Create a financial plan driven by low or no risk. So you got to be able to say if, if I'm only want to earn three or 4%, or whatever that low number is, how does that look goal wise down the road cannot pull it off, can I make it happen? If you're not having these conversations with your advisor, this is the bottom line you need to sit down and talk in depth and make sure that they understand, hey, this is how I feel about risk.

You don't want to be focusing on the losses and what's happening. You just want to make sure that what's the expectation of how these investments are going to work. what's the what's the greatest downside can I live with that and make sure that your advisors respecting your risk