Is your Market Number up?
Everyone has a risk tolerance it can’t be ignored. Every great stock broker or financial planner knows how to find this, and they have to make every effort to help you determine what level of risk you can tolerate. Then, they can moved forward and work with you to find investments that don’t max out your risk tolerance.
Determining your own risk tolerance does take some time to complete, correctly and several different things need to be accounted for. First, you figure out know exactly how much money you have to work with, and what your investing and financial goals are now and what they will become in the years ahead.
For example, if you want or plan to retire in the next ten years, and you’ve haven’t saved any money towards that end, you must have a high risk tolerance – because of how you have acted in the past, now you will need to do some aggressive – risky – investing in order to reach your financial goal.
On the other side of the coin, if you are in your early twenties and you want to start investing for your retirement, your risk tolerance will be low. You can afford to watch your money grow slowly over time.
Realize of course, that your need for a high risk tolerance or your need for a low risk tolerance really has no bearing on how you feel about risk. Again, there is a lot in determining your tolerance.
For instance, if you invested in the stock market and you watched the movement of that stock daily and saw that it was dropping slightly, what would you do?
Would you sell out or would you let your money ride? If you have a low tolerance for risk, you would want to sell out… 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!
Again, a good financial planner or stock broker should help you determine the level of risk that you are comfortable with, and help you choose your investments accordingly.
Your risk tolerance should be based on what your financial goals are and how you feel about the possibility of losing your money. It’s all tied in together.