What Is Your Risk Tolerance?

Each individual should be careful as to not ignore their risk tolerance. Any good stock broker or financial planner might already know this, and they should make the additional effort in order to help you find out what your risk tolerance is. Then, they should work with you in order to find investments that won’t go above your risk tolerance.

Finding out what one’s risk tolerance is involves many different elements. Firstly, you will need to know how much money you need to invest, and what are your investment and financial goals.

For example, if you plan to take your retirement in ten years, and you haven’t saved a single penny towards that end, you will need to have a high risk tolerance – as you will need to do some aggressive and risky investing in order to attain your financial goal.

However, if you are in your early twenties and you would like to start investing for your retirement, your risk tolerance will be much lower. You will be able to afford to watch your money grow gradually over time.

Obviously you should bear in mind, that your need for a high or low risk tolerance really has no bearing on how you feel about risk. Once again, there is a lot that goes into determining your tolerance.

For example, if you invested in the stock market and watched the movement of that stock daily and saw that it was slightly dropping, what would you do?

Would you let your money ride or would you sell out? If you have a low tolerance for risk, you would probably want to sell out. And, if you have a high tolerance, you would most probably let your money ride and see what happens. This isn’t based on what your financial goals are. This tolerance will be more based on how you feel about your money!

Once again, a good financial planner or stock broker should help you to determine the level of risk that you feel comfortable with, and will help you to choose your investments accordingly.

You should base your risk tolerance on what your financial goals are and how you feel about the possibility of losing your money. All these elements are related with each other.

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