Determining Your Risk Tolerance for Investments by pfinancecr


More Info
Your Risk Tolerance for Investments

  Determining Your Risk Tolerance for Investments

  When you're ready to invest, you'll likely consider the amount you have available to
  invest and what you want your financial gain to be over a specific period. You may be
  quite specific about these factors, or maybe you care only about the bottom line and
  how much you stand to lose or gain.

  For your own peace of mind, it's wise to determine your level of risk tolerance for
  your investments. Understanding your own wants and desires related to your finances
  will largely determine how you decide to allocate your funds.

  Consider your answers to the following questions to help you determine your level
  of risk tolerance regarding investments:

     1. How much are you willing to risk? Based on how much money you currently
        have, how much of it are you willing to risk in an investment?

             Of course, some people will say, "no problem, let's go for it" regardless of
             how much they're worth. Others, however, will carefully evaluate their
             financial worth and be willing to risk only a certain percentage of their
             overall wealth.

     2. Are you okay with no cash flow? Can you handle no investment cash coming in
        for a while if a large investment goes south?

             If so, how long can you put up with this condition? Being able to live with
             no money coming in is difficult for most people. How well you can accept
             this situation is an important determinant of your risk tolerance.

     3. Is an investment "doable" in your eyes? If you're considering a specific
        investment, do you feel the investment is one you could make without

                                              Each person has his own thoughts and ideas about the type of investments in
                                              which he has confidence. Your investment risk tolerance depends on the
                                              rigor with which you evaluate your potential investments.

                                      4. What is your experience in investing? Are you able to adjust to money losses in
                                         the short term to gain funds over the longer term?

                                              If you're 40 years old and you've been investing for 20 years, you've got 2
                                              decades of experience under your belt. You can most likely trust in your
                                              prior investment experience when it comes to making investment
                                              decisions. Plus, 20 years of investing builds a lot of confidence, which
                                              strengthens your risk tolerance.

                                              But what if you're 35 years old and making your first investment? If this
                                              description is closer to your situation, your risk tolerance will be lower
                                              and for good reason.

                                      5. How old are you and how much are you worth? These factors are also
                                         important when it comes to making difficult decisions about how to invest your

                                              When you're younger, you may have more tolerance for loss because you
                                              have more time to make up any losses before you retire.

                                              Also, at any age, the higher your net worth, the easier it may be to tolerate
                                              a loss of a small percentage of your worth.

                                   It's wise to know your level of investment risk tolerance. Because making investments
                                   are so integral to you and your family's financial future, it's important you be intimately
                                   connected with your feelings and ideas about investing your money and the risks

                                   If you seriously ponder the above questions and your responses, you'll be able to
                                   determine successfully your risk tolerance for investing.


Powered by TCPDF (
Curtis Rose is an experienced professional with extensive experience in all
aspects of personal finance. Curtis writes and publishes articles, courses,
guides and special reports on his personal finance blog. Sign up for his
monthly personal finance newsletter and receives tons of free information
that you can use to help you reach financial freedom.


To top