How Much Risk Can You Tolerate?
from Investorama.com
Risk is an unavoidable component of investing. It is necessary to accept a certain amount of risk in order to generate a reasonable return on your investment. The more risk you are willing to assume, the greater the potential return your investments can provide. The amount of risk you should assume is dependent on two primary factors: your personal tolerance and your investing time frame.
It's very important to understand how much risk you can accept in your own investing. It's not a good sign if you are constantly worried about your investment portfolio and fearful of what will happen if share prices fall. You should be comfortable with the risk level of the assets you own, whether you are investing on your own or following the advice of a financial planner or full-service broker.
A good rule of thumb is if you can pass the "sleep" test. If you stare at the ceiling from your bed each night, thinking of how you'll cope if the market crashes, taking your portfolio along with it, then you're probably invested in assets that are too risky for your personal comfort. You should reduce your risk exposure until you own a portfolio that allows you to sleep at night.
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