| Home |

Understanding Risk Tolerance as an Investor

Monday 15 April 2019 at 06:44 am. Used tags: , ,

As an investor, one of the most important things you should be aware of is your risk tolerance. This is the process of defining and understanding your ability to tolerate risks, which is a given factor in investing. When you take a risk tolerance survey, chances are, the survey will measure how willing you are to take higher risks for the possibility higher returns. This is not a fixed factor as your risk tolerance will continuously change according to your income, age, marital status, knowledge, and other important life milestones such buying your own house, sending your kids to college, or retirement.

Types of risk tolerance

1. Aggressive

This type of investor is willing to do high-risk strategies in order to have higher returns. This type of investor should keep in mind that he must also be able to withstand the risky fluctuations that can occur.

2. Moderate

This type of investor is all about balance and does investment strategies like asset allocation and diversification. They go for low-risk choices and mix in high-risk choices when it comes to investing. You can find more details on risk tolerance survey on the site stackup.io.

3. Conservative

This type of investor is playing safe and leans more on accepting lower returns to ensure that there will be no get losses. This type of investors are often interested in money market, bonds, cash, and CDs accounts.

From these three categories, you may be able to have an idea where you belong. Remember that risk tolerance is a measure of how much risk you are willing to handle. It is different from the amount of risk that you should take in your investments. Aside from risk tolerance, you should also be thinking of other factors such as risk perception (how you perceive risk) and risk composure (how you will behave in case of financial loss). So if you think your risk tolerance score is good, do not take it as a sign to immediately turn into an aggressive investor.