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Managing Risk While Investing

Jun 13, 2008
Once you have made the very important decision that you need to invest your money as a vital part of fulfilling your dreams, the next step is to talk to a financial professional getting you a risk assessment so that you know your personal risk tolerance.

Assessing your risk means figuring out how much risk you can take in your investment portfolio without losing sleep, being always stressed out, or being ever fearful that you are going to lose all of your money.

The fact of the matter is that when it comes to investing, the greater your level of risk, the greater your potential rewards and the faster you can anticipate receiving those rewards. It is an investment basic that taking on additional risk is the way of leveraging a higher amount of energy for the creation of wealth.

However, the basic trick is to take calculated risks. Just as you need to think about where you want to go and how you want to get there before you pull out of your driveway in your car, so you have to think about what level and kind of risk you are willing and emotionally able to take before you buy stocks or other investment vehicles.

If you are new to investing, you will want to meet with a financial professional who can ask you the right questions and give you the right kind of feedback about your responses in order to guide you into a portfolio of investments that is right for you.

Balancing your risks with a certain measure of security and making sure that your investment portfolio reflects who you are, not who your advisor or parents or spouse or the guru you heard about on TV are, is a financial adviser's primary responsibility. Experienced financial professionals have seen all kinds of economic situations, good and bad, that might provoke you into doing the wrong thing with your money -- either out of too much exuberance or too much fear -- and costing you dearly. Their advice can keep you from overreacting when cooler heads need to prevail.

Yes, one of the most important investing basics is that you must always keep a cool head. And one of the most important ways of keeping a cool head with your investing is to know your personal risk tolerance and make sure you only take calculated risks, not blind risks.
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