07/17/2013 11:12 am ET Updated Sep 16, 2013

How to Put Your Portfolio's Risk Level in Perspective

For Women & Co. by Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management

Am I taking too much risk? To answer this question, we'll often look at our portfolio, focusing on the mix of stocks and conservative investments.

But just because some investors have a heftier allocation to stocks doesn't mean they're taking on more risk than other folks with less aggressive investment mixes. Instead, we need to look beyond the mix of stocks and conservative investments -- to the rest of our financial lives.

Consider two hypothetical investors. Both are age 40 and both have $200,000 portfolios. His portfolio consists of $100,000 in bonds and $100,000 in a diverse collection of stocks. Her portfolio consists of $75,000 in bonds and $125,000 in a similarly diverse mix of stocks.

At first blush, she seems to be taking more risk. But to figure out whether her overall finances are truly riskier, we may want to ask some additional questions. Here are three issues you may want to discuss with your financial advisor.

How secure is your job?

She might be a government employee with a steady paycheck and little likelihood of losing her job. He may run a small business with fluctuating income and uncertain prospects.

How much debt do you have?

She might be debt-free, while he has $100,000 in debt. In fact, if you subtract his $100,000 in debt (which is costing him interest) from his $100,000 in bonds (which are paying him interest), his net bond position is effectively zero.

Will you receive a pension when you retire?

Her government job will pay her a pension when she quits the workforce. He isn't nearly so lucky. The bottom line: While her portfolio is more aggressive, her overall finances appear to be more conservative -- and maybe she can afford to take a little more risk with her investments.

Women & Co., a service of Citi, is the go-to personal finance source for women. By providing financial content, commentary and community, Women & Co.'s mission is to get women thinking and talking about personal finance. Founded in 2000, Women & Co. is one of the longest running personal finance websites dedicated to helping women strengthen their financial futures.