How to Gauge Your Personal Risk Tolerance.
November 23, 2016 by Staff
Filed under Money/Business, Tech/Internet, Weekly Columns
(Akiit.com) Before you can start a successful investment strategy, one of the very first things you need to have an understanding of is what your personal risk tolerance is.
Your risk tolerance is going to determine everything from how much money you invest, to where you put your money.
For example, are you willing to be a short-term, high-risk investor? If so you might look at something like learning how to invest in penny stocks. On the other hand, if you don’t want a lot of risk in your strategy and you’re looking more at the long-term horizon, you might instead invest in something safer like mutual funds. Also rolls royce shares seem to be ticking on the upside lately. As always, do research before purchasing anything.
The question for many investors is how they can determine what their level of risk should be.
Consider the following factors when you’re assessing your willingness to take on risk.
What Are Your Goals?
Risk tolerance is incredibly personal and individualized. When you’re trying to determine your own comfort level, first begin by looking at your goals and objectives. These may change over time but look at them as they currently stand.
For example, is your goal a comfortable retirement, or to build an income from your investments?
How Much Access Do You Need to the Money You’re Investing?
If you’re a long-term investor, you can likely set money aside and then forget it’s there for many years or even decades. You probably want a low-risk investment strategy that will allow your money to grow over that time and give you steady returns.
On the other hand, if you want your money to be accessible to you at any given time, or even start earning you a regular amount of income, you could be more willing to take on risk. At the same time, while people who want an income from their investments may need a higher level of risk as part of their portfolio, if you have a low income right now, that’s also a consideration.
You may not be able to take the burden of a lost investment, so again, that’s something to keep in mind as you hone in on the right personal strategy for you.
How Do You Feel About Uncertainty?
Regardless of how much money you have to invest, it’s as much about your feelings as the financial elements.
Do you feel comfortable with a sense of uncertainty or are you someone who’s prone to anxiety? Do you think you would be able to ride out a down market or would that be difficult for you?
You have to build your investment strategy around your personality as much as your financials and your objectives. If you’re someone who hates uncertainty, you’re likely going to need a less risky way to invest your money.
How Much Time Can You Dedicate?
As a final note to consider when you’re assessing your risk tolerance, you need to look at how much time you can give to investing. If you’re already short on time and you want something you don’t have to think about, your risk strategy might have a minimal level of risk.
On the other hand, if you want to be an active trader, you may be able to shoulder a higher risk level.
Once you’ve assessed yourself, your life and your finances you can start building a plan for investing around your overall level of risk tolerance.
Staff Writer; Bobby Winston