Investments for Federal Agents – How much risk are you taking?
It’s a good idea to ensure that investments for Federal Agents match the level of risk and reward you are willing to accept. Remember, your portfolio is the main driver toward your goals. It’s a great idea to calculate your Equity Rate score and then monitor this key financial vital sign for you and yours!
What is it?
Equity Rate (Er) indicates the percentage of your total investable assets allocated toward equity investments (i.e., stocks).
Example please:
Assume you have a savings account with $20,000, a brokerage account with $25,000, an IRA with $150,000 and a TSP with $600,00 (Total = $795,000). If the equity portion (stocks) of all these accounts was $620,000, your Equity Rate (Er) would be 78% ($620,000 / $795,000).
Why is Equity Rate (Er) so critically important?
Investments for Federal Agents highlight that Net Worth is key to success. To grow Net Worth, there are three primary “levers” you can pull: you can save more, reduce debt, or grow assets via your investments.
Unlike the first two levers, you have little control over your investment returns. But you can control how much risk you are willing to take with these investments.
With our methodology, investment risk is specifically measured by your exposure to equity (stocks) investments. If you have more exposure to equity investments, then you are taking more risk in the hopes of more return. If you have less equity (stock) exposure, then you are taking less risk with the understanding that you’ll likely have lower returns. Further, including your personal cash into the total calculation provides a more accurate and complete picture for you.
Equity Rate (Er) is another key indicator of your current financial wellness. It’s valuable to know this score right now, but it’s also important to monitor over time so that you get an idea of which financial behaviors affect your Er score for the long run.
Examples of what may affect your Equity Rate (Er)?
Average Er scores depend on a variety of factors. Understanding the correlation between these factors and your equity exposure will help you determine if your Equity Rate is appropriate. Here are a few examples:
- Investment Time Horizon: Shorter = Lower Er
- Risk Capacity (how much risk you can actually take on): Higher Capacity = Higher Er
- Risk Tolerance (how much risk you are comfortable taking on): Higher Tolerance = Higher Er
Understanding your Equity Rate (Er) score is key to understanding whether or not you are taking too much or too little risk with your investments. We keep our assessment of your investments fairly straightforward to avoid confusion. We also think it’s important to use education. This is the tool that closes that gap between how much risk you can actually take on (Capacity) and how much risk you are comfortable taking on (Tolerance).
Er is one of the key elements in building Financial Scorecards for Federal Agent retirements. Charles Michael Financial serves Federal Agents. It’s the ONLY registered financial planning firm in the nation built specifically for that purpose. We are customized to you. Our cutting edge software captures all the items that go into a Er score. This is a huge win for our Federal Agent financial planning clients. We even use this software in our MoneyArmor™ Membership coaching platform.
What do you use to calculate your Equity Rate (Er)? Advanced financial software or the back of a bar napkin? Either way, get an accurate Er score so you can get better oriented to your money!
Click below and get a peek inside the Equity Rate Report for Wyatt & Josephine! You must start to believe that you are UNSTOPPABLE in the Battle for Financial Independence!
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