Considering risk limits is important

Most Canadians are invested in the market in some way or another, with or without an adviser, through mutual funds, market linked GICS, guided stock portfolios, or exchange traded funds.

Experienced investors understand the risk-return trade-off of the market and are more comfortable with market volatility, constantly looking for opportunities to profit over long time horizons.

While it's true that one must accept a higher degree of risk to earn a higher return, not all investors can afford future losses. Our ability to bear risk has a tendency to decrease as we age, and often those investors who believe they have a high tolerance for market risk suddenly change their minds when the market turns against them.

If you're not a knowledgeable investor and are relying solely on the decisions of your adviser, you should make sure you have communicated your risk tolerance and are invested correctly. Often clients fill out risk questionnaires with their advisers.

Your investment portfolio should never be left on “autopilot” with your adviser. Assumptions should not be made when it comes to your money and you should be speaking to your adviser regularly with a routine six-month financial review.

As people age, their objectives, financial and personal circumstances, and overall risk tolerance change. Proper tax planning should be a part of every investor's overall financial strategy, but not at the expense of more risk adverse investments.

Tax minimization should never be the sole objective, nor can it be allowed to overwhelm the other elements of a proper financial plan. Remember that it's the “after-tax income return” that's important.

The best risk and tax advantages usually are gained by planning early and planning often. Financial plans should be simple, easy to implement, and easy to maintain. Make sure you understand each investment product you have chosen and are aware of the potential risks, as well as the potential future rewards.