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Determine Your Financial Risk Tolerance When Making An Investment
Each person has a risk threshold that should not be ignored. Any good share broker or financial planner knows this, and they should make the effort to help you find out what your risk tolerance is. Then, they should act with you to find resources that do not go beyond your risk tolerance.
Determining one's risk limit involves several different things. To start with, you need to know how much money you have to put in, and what your investment and financial goals are.
For instance, if you are retiring in ten years, and you've not saved any money towards that end, you must have a high exposure tolerance - because you will need to do some assertive - 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 like to start investing for your retirement, your risk tolerance will be lesser. You can afford to follow your money grow slowly over time.
Understand of course, that your requirement for a high risk tolerance or your need for a low risk tolerance basically 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 day by day and saw that it was going down a little, what would you do?
Would you trade out or would you let your money ride? If you have a low tolerance for risk, you would seek to sell out... if you have a high tolerance, you would allow your money ride and see what happens. This is not driven by what your financial goals are. This forbearance is based on how you look at your money!
Again, a good financial planning consultant or stock broker should help you determine the level of risk that you are convenient with, and help you choose your investments accordingly.
Your risk threshold should be based on what your monetary targets are and how you perceive the probability of losing your money. It's all linked together.
A good financial planner can also inform you on the risk factors related to various kind of investment vehicles such as venture capital and seed money investing against investing in a company going public, or a reverse merger, or some other public mergers.
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