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Determine Your Risk Tolerance
from InvestmentCare.com
Another important step in getting started in the investment process is to determine your individual tolerance for risk. As an investor, it is important to understand the different levels of risk in order to select the most appropriate investment that fits your current financial condition. Although there are several different categories for determining risk tolerance, the following is a list of the three (3) most frequently used risk levels as they relate to investing:
Conservative
The conservative approach to risk is generally the least tolerant of all risk levels. Investors who have a conservative level of risk tolerance are willing to accept relatively low investment returns in return for minimal risk and volatility. Similarly, investors with conservative levels of risk tolerance tend to concentrate on investments with minimal price fluctuation and exposure to loss of investment principal.
Moderate
The moderate approach to risk tolerance focuses on average investment risk. Investors who have a moderate level of risk tolerance are willing to accept relatively average market risk and volatility for the potential of higher investment returns.
Aggressive
The aggressive approach to risk is typically the most tolerant of all risk levels. Investors who have an aggressive level of risk tolerance are willing to accept a substantial amount of market risk and volatility for the pursuit of potentially high investment returns.
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