January is an ideal time for clients to step back and reassess their risk profile. After all, the amount of risk you are comfortable taking in your portfolio is not static. It evolves with life changes—personal milestones and shifting priorities. Regularly revisiting your risk profile helps ensure your financial plan continues to support both your current lifestyle and the legacy you desire to build.
Your risk profile- or risk band as we like to call it at Vardhan- represents the level of uncertainty that makes sense for your current situation to achieve long-term returns. Once the appropriate risk band is defined, we use this as the foundation of your portfolio design. Generally, higher risk offers higher investment returns, but in turn may lead to greater volatility. That is a ‘risk” an investor is taking. During certain life stages, preserving wealth may be more important than growth, and an investor may choose less risk, rather than maximizing upside.
At Vardhan, success is not met by simply matching market returns. Instead, it is achieved when returns equate to what your portfolio is designed for. For example, if the market is up 30% and your portfolio is up 20%, that may be exactly the right outcome if your portfolio is only 30% invested in equities. Lower market exposure will generally have different outcomes, and that is intentional. Therefore, accurately defining your risk profile is critical to design a portfolio to achieve your goals, across market environments.
At Vardhan, we help you focus on what matters most— earning what you need, not simply keeping up with the market. While it’s natural to want higher returns, we take the time to make sure you understand the difference between market comparisons and real-world results, so your expectations stay aligned with your priorities and your long-term plan.
A YEAR IN REVIEW
A meaningful risk assessment begins with reflection. The past year often reveals subtle—and sometimes significant—changes that warrant attention. Below are some elements to consider when assessing your risk profile.
- Evolving Goals & Priorities: Job transitions, approaching retirement, liquidity events, philanthropic ambitions, and shifts in personal priorities all influence how much risk is appropriate. When circumstances or mindset change, your plan—and how risk is incorporated into your portfolio—should evolve accordingly.
- Market Performance & Personal Comfort: Market volatility affects every investor differently. For many of our clients, routine volatility does not threaten their quality of life or significantly impact their long-term goals—but if market fluctuations create unnecessary stress, that may necessitate addressing one’s risk exposure. After all, a sound financial plan should help you sleep well at night—not prompt anxiety. For example, if you have a $30 million portfolio and your current allocation feels too volatile for you, a 5% reduction in equity exposure could bring you peace of mind without impacting your lifestyle.
- Allocation Creep: Allocation creep refers to the gradual movement away from a targeted asset mix, often driven by market performance as certain asset classes outperform others. Redemptions, deposits, dividends, and other factors can also play a role. Left unaddressed, this shift may introduce more risk than intended, underscoring the importance of regular reviews and rebalancing.
THE QUALITATIVE SIDE OF RISK
A risk profile is not merely a quantitative score. It encompasses an investor’s responsibilities, long-term aspirations, emotional comfort, and definition of a fulfilling life.
Consequently, strategic risk management is ultimately about aligning resources with the life you want—sometimes that means reducing volatility; other times it means shifting allocation or maintaining growth exposure.
Vardhan client review meetings are far more than reviewing past performance and monitoring asset creep. We look at the bigger picture to understand if and how your goals, priorities and circumstances have evolved and how this impacts your plan. From there, we assess if your risk band needs adjustment and whether the portfolio is aligned with the lifestyle you want to achieve.
We recently worked with a client who enjoyed a successful career and is now looking to slow down, spending more time with family and pursuing personal interests. During the client meeting, in which we intentionally included his wife as these decisions impact both of their lifestyles, it became apparent that they no longer need the same market exposure to accumulate additional wealth – they were already where they need to be to achieve their goals. Consequently, we notched their risk band downward.
We are having more de-risking conversations than in prior years even for clients not yet ready to partially or fully retire. Many have experienced strong market performance for the past decade and want to be more conservative to help protect against the next market pullback. In general, the closer one is to retirement, a lower risk band is often appropriate to safeguard assets as one shifts from wealth accumulation to distribution and access to capital is more important.
These stories reflect a broader truth: effective wealth management involves learning how to use wealth meaningfully, not simply protecting or growing it. Risk plays a central role in that balance. You must remain aggressive enough to achieve your goals, but you must also recognize when “enough” is enough—when maintaining or rebalancing an allocation better serves your life.
WHERE PURPOSE MEETS PORTFOLIO
At Vardhan Wealth Management, your unique situation, aspirations, and values, along with your risk profile, drive your plan. Your plan dictates your portfolio—and your portfolio supports the life and legacy you desire.
A thoughtful review of your risk profile each year ensures that your wealth continues to work in service of what matters most—today and well into the future.
The scenarios described above are for illustrative purposes only. They are not representative of the experience of all clients and do not guarantee future performance or success. This material is for informational purposes only and should not be construed as personalized investment, tax, or legal advice and individual results will vary. Investing involves risk, including the possible loss of principal.