Home » Finance » Investing

What Is Your Investment Risk Tolerance?

Aug 26, 2007
It is extremely important to have investments. Without some money set aside for retirement, you will never be able to enjoy your golden years. Social Security will likely be depleted within the next 30 or 40 years, so you should not be depending upon the U.S. Government to take care of you when you retire. Besides, Social Security does not even pay enough to help senior citizens live comfortably. So, you need to invest your money wisely, perhaps aggressively, in order to grow your portfolio to a level that will adequately support you after you retire, and you need to start while you are still young.

You need to ask yourself the following question when deciding in what you are going to invest: What is your investment risk tolerance? Answering this question will enable you to develop your entire investment strategy. Are you going to put all of your money into variable securities, like stocks? Are you going to balance your portfolio with a mix of stocks and fixed-income securities (like certificates of deposit or other money market instruments, etc.)? Should you buy bonds? Should you invest in an annuity?

Answering these questions can be difficult and time-consuming, but necessary nonetheless. When evaluating your risk tolerance, you should first consider what type of person you are. If you like to take risks, then invest accordingly. If you hate to take chances, then play it safe. Also, you need to assess what your long-term goals are. Do you want to make a lot of money, or just enough to retire on? Do you have kids that you will one day want to send to college or provide other financial support to?

We will now set forth an appropriate investment strategy for each different risk tolerance, beginning with high-risk tolerance. If you are not afraid of losing money and do not have any kids or other responsibilities weighing you down, then you might consider putting together a very aggressive portfolio. In this case, you should have a portfolio that consists of mostly equities (stocks). The stocks you select should be companies that have the potential to grow tremendously. The higher the risk, the higher the potential reward. Though you should still keep some of your money invested in blue-chip companies with stable finances, you should put a great deal of your money in new companies, hedge funds, and perhaps junk bonds. You should consult with a financial advisor when looking for the right hedge funds or junk bonds in which to invest.

What if you have a medium risk tolerance? Well, for those of you that fall in the middle, the answer is simple. You should have a balanced portfolio. You need to have a mix of stocks, bonds, and fixed-income securities. You may want to set aside a very small amount of money for speculative investments such as the aforementioned hedge funds, penny stocks, or perhaps derivatives, but most of your money should be allocated towards a mix of stable small-cap, mid-cap, and large-cap stocks, government and corporate bonds, and fixed-income securities.

Finally, for those of you who are extremely risk averse, you need to compose a portfolio that consists of mostly high-yield government bonds and certain money market instruments that pay a decent interest rate. You should also invest in corporate bonds issued by companies with a high credit rating, and stocks of companies that consistently pay dividends (dividend income will help to offset any losses in the share price of the stock).

I hope this information will assist you in making your investment decisions. Formulate a plan to set aside a certain percentage of your income for investing on an annual basis and start while you are still young. The earlier you begin, the more money you can potentially make down the road. Using your risk tolerance, select a portfolio that meets your needs, and you should do fine.
About the Author
Jim Pretin is the owner of http://www.forms4free.com, a service that helps programmers make email forms.
Rating:
Please Rate:
(Average: Not rated)
Print Email Report Share
Article Categories
    • Artists
    • Gambling
    • Humanities
    • Humor
    • Movies
    • Music
    • Photography
    • Tattoos
    • Television
    • Classic Cars
    • Motorcycles
    • Recreational Vehicles
    • SUVs
    • Trucks
    • Vans
    • Branding
    • Business Opportunities
    • Careers and Jobs
    • Corporate
    • Customer Service
    • Direct Mail
    • Entrepreneurship
    • Ethics
    • Financing
    • Franchising
    • Home-Based Business
    • Human Resources
    • Import and Export
    • Leadership
    • Management
    • Market Research
    • Marketing and Advertising
    • Negotiation
    • Network Marketing
    • Networking
    • Organizational
    • Presentation
    • Project Management
    • Public Relations
    • Small Business
    • Strategic Planning
    • Team Building
    • Telemarketing
    • Training
    • Data Recovery
    • Databases
    • Games
    • Hardware
    • Networks
    • Operating Systems
    • Programming
    • Security
    • Software
    • Spyware and Viruses
    • Ask an Expert
    • College and University
    • Home Schooling
    • K-12
    • Languages
    • Online Education
    • Psychology
    • Coffee
    • Cooking
    • Gourmet
    • Recipes
    • Wine and Spirits
    • Acne
    • Aerobics
    • Alternative Medicine
    • Beauty
    • Cancer
    • Cosmetics
    • Depression
    • Diabetes
    • Diseases and Conditions
    • Fitness Equipment
    • Fitness
    • Hair Loss
    • Heart Disease
    • Medicine
    • Men's Health
    • Muscle Building
    • Nutrition
    • Skin Care
    • Supplements and Vitamins
    • Weight Loss
    • Women's Health
    • Yoga
    • Arts and Crafts
    • Babies
    • Collecting
    • Elderly Care
    • Genealogy
    • Hobbies
    • Parenting
    • Pets
    • Pregnancy
    • Woodworking
    • Feng Shui
    • Gardening
    • Home Appliances
    • Home Security
    • Interior Design
    • Landscaping
    • Affiliate Programs
    • Article Marketing
    • Auctions
    • Audio
    • Banner Advertising
    • Blogging
    • Broadband
    • Domain Names
    • E-Books
    • E-Commerce
    • Email Marketing
    • Ezines and Newsletters
    • Forums
    • Internet Marketing
    • Link Popularity
    • Pay-Per-Click
    • Podcasting
    • RSS
    • Search Engine Marketing
    • Search Engine Optimization
    • Security
    • Social Media
    • Spam
    • Video
    • Viral Marketing
    • Web Design
    • Web Development
    • Web Hosting
    • Copyright
    • Cyber Law
    • Intellectual Property
    • National, State, Local
    • Patents
    • Regulatory Compliance
    • Trademarks
    • Buying
    • Selling
    • Baseball
    • Basketball
    • Boating
    • Cycling
    • Extreme Sports
    • Fishing
    • Football
    • Golf
    • Hockey
    • Hunting
    • Martial Arts
    • Running
    • Scuba Diving
    • Soccer
    • Swimming
    • Tennis
    • Dating
    • Divorce
    • Marriage
    • Weddings
    • Astrology
    • Buddhism
    • Christianity
    • Faith
    • Hinduism
    • Islam
    • Judaism
    • Meditation
    • Metaphysical
    • New Age
    • Cable and Satellite TV
    • Cell Phones
    • Communication
    • Gadgets and Gizmos
    • GPS
    • Satellite Radio
    • Video Conferencing
    • VoIP
    • Addictions
    • Coaching
    • Goal Setting
    • Motivational
    • Stress Management
    • Time Management
    • Clothing
    • Electronics
    • Fashion
    • Gifts
    • Jewelry
    • Causes and Organizations
    • Environment
    • History
    • Holidays
    • Men's Issues
    • Nature
    • Philosophy
    • Politics
    • Women's Issues
    • World Affairs
    • Air Travel
    • Camping
    • Cruises
    • Destinations
    • Outdoors
    • Article Writing
    • Book Reviews
    • Copywriting
    • Fiction
    • Non-Fiction
    • Poetry
    • Quotes
    • Screenplay
    • Tools and Resources