Determine Your Risk Tolerance
Date Added: April 17, 2008 06:51:33 PM
Ingrained in every person is that individuals willingness to take risks, or risk tolerance, which when it comes to investing should not be ignored. Every legitimate financial planer or stock broker knows this, and should be able to help you determine what your level of risk tolerance is when it comes to investing. They should be able to work to find investments that are within your comfort zone. 
Figuring out your risk tolerance involves several different factors. You need to know how much money you have set aside solely for investments, and you need to know what your goals are, both in terms of investing and your personal financial situation.
For example, if someone is planning on retiring in the next fifteen years, and has done minimal or worse yet, no saving at all, they are going to have to invest with a very high risk factor, and have a high risk tolerance. This is because you are going to have to make some high risk high reward investments to reach your financial goal.
Those people that begin investing at a young age, can maintain a low risk tolerance, because they can watch their money grow slowly on its way to their long term financial goals.
If you invest in the stock market and you watch the movement of you stock daily and saw that it was dropping slowly, what would you do?
Are you going to sell that stock, or be patient and let it run its course? If you have a low risk tolerance, you are going to want out of that investment as quickly as possible… if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your financial goals are. This tolerance is based on how you feel about your money and more importantly how you feel about losing your money!
This is another reason why you want to meet with a good stock broker or financial planner, coming up with a plan is going to be based on your actual desire for risk along with your financial risk tolerance.
Some people are born gamblers and no matter what there situation is telling them to do in terms of risk tolerance, they will always go with a high risk, high reward option. The best advice is to start investing young so that you do not end up in a financial hole as retirement approaches.
