The Difference Between Risk Tolerance and Risk Capacity

Christopher Fess has been working in the financial services industry for three decades. Based in Texas, he provides financial advice to clients through Fess Financial and Life & Legacy Financial. The advice provided by Christopher Fess and his team covers a variety of matters relating to investments and retirement, including risk management.

Whether you are investing for yourself or for clients, it is important to understand both risk tolerance and risk capacity. These phrases refer to two very different concepts that affect how you or your client make investments, what your ideal time-frame is, and your financial expectations.

Most people are likely familiar with the idea of risk tolerance. This refers to the amount of risk that you are willing to take based on your personal tastes and feelings, and the amount of volatility and losses you can handle. If, for instance, you find yourself extremely stressed about the potential losses of your investments, your risk tolerance is low and you should focus on less volatile assets. Conversely, if you’re emotionally capable of handling such losses, consider adding more high-risk products to your investment portfolio.

While risk tolerance is based on your feelings and desires, risk capacity is a mathematical measure of the amount of risk you can take. More specifically, it’s a measure of the risk you can take without negatively impacting your progress towards your financial goals. Because of this, risk capacity varies between each person according to their financial situation. Further, you will notice that your risk capacity changes over time as your financial situation varies. This is rarely the case with risk tolerance.

How Does Social Security Work?

Texas-based financial advisor Christopher Fess leads Fess Financial and Life & Legacy Financial in Frisco. Possessing nearly three decades of experience in the finance industry, Christopher Fess regularly conducts financial seminars about all aspects of tax planning, retirement planning, and social security.

In the United States, the government’s Social Security program provides some protections to retired and disabled citizens. This program is made possible via the pooling of mandatory contributions from workers. As people work, a portion of their income goes toward this program and is paid out to eligible retirees and their families each month. According to the Social Security Administration, retirees in the US get $0.85 of every dollar given to Social Security, while disabled individuals get the remaining $0.15 of each dollar.

To determine eligibility, the program relies on the number of credits each person earned when working. For 2019, one credit was assigned for every $1,360 that a person earned. That person could earn up to four credits each year. Before an individual can collect Social Security, they must have 40 credits, amounting to about 10 years of full-time work. However, benefits are based on a person’s highest 35 years of average earnings. So if they worked for only 10 years, their highest average would still be low, thus resulting in low Social Security benefits.

It’s also important to note that people seeking their full retirement benefits from Social Security must wait until their are 67 years old, if they were born in 1960 or after. While it’s possible to collect early retirement benefits from Social Security starting at age 62, doing so will dramatically decrease a person’s monthly benefits.

Overview of the Chartered Financial Consultant Certification

A financial advisor at Fess Financial Christopher Fess has 30 years of experience in the industry. In his current role, Christopher Fess’s chartered financial consultant (ChFC) certification enables him to provide advisory services to his clients on matters related to retirement income planning.

The chartered financial consultant (ChFC) and the certified financial planner (CFP) designations are similar, but the former requires more education and allows the license holder to assist clients in more areas. The ChFC coursework includes nine more classes that focus on investing and insurance and retirement planning. Once coursework has been completed, ChFC license holders are required to complete 30 credit hours every two years to hold onto the certification.

The ChFC can only be earned through the American College. The American College, based in Bryn Mawr, Pennsylvania, was created to help financial planners become certified in areas related to the insurance industry. The prerequisites for entry into the college is to have three years of full-time business experience within the first five years of getting the certification.

There are a few major benefits to earning this certification. The licensed adviser can actually help clients with a broader range of transactions in comparison to those who do not hold the certification. Finally, the certification makes them more attractive to employers, and ChFC license holders’ salaries are typically higher.

Types of Education Accounts

Financial Advisor Christopher Fess of Frisco, Texas has more than 15 years of experience assisting clients in making wealth management decisions. One of the ways Christopher Fess assists clients is by choosing the right college fund for their children.

Parents who have decided to finance their children’s education have different options. One of the most common educational funds, the 529 plan is authorized through the state, state agencies, or educational institutions and includes two investment options. The first option is the pre-paid tuition plan which allows parents to purchase credit hours at current rates for the child’s future education. Then, there is the education savings plan, which allows parents to set up an investment account that can be used to pay for a child’s tuition, mandatory fees, and housing. The advantage is the money grows in the account tax-free, and taxes are assessed if the money is used on qualifying expenses.

One other education funds include the Coverdell Education Savings Account which enables investors to use the money for expenses that occur at any time beginning in elementary school and ending in college. This plan is more flexible and can be managed the teens as soon as they reach the age of 18.

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