In today’s episode, we are going to look at risk tolerance, which is such an important part of the investment decision process, because there’s no single answer to the question of ‘How much investment risk you should take on?’ It very much depends on your individual circumstances, goals, and comfort level with risk.
Some people are more comfortable with risk than others.
Some people are willing to take on more risk in order to achieve their goals and some people have different tolerance for different types of risk. Understanding, investment risk, and determining what level of risk you feel comfortable with before you invest is an important part of any investment decision, and mustn’t be underestimated.
Your potential returns available from different kinds of investment and the risk involved change over time as a result of economic, political, and regulatory developments, as well as a host of other factors.
There are few different ways to think about risk tolerance.
One way is to consider; How you would feel if your investments lost money in the short term?
If the thought of seeing your account balance go down makes you anxious, you may be risk averse, but let’s look at the other factors involved in determining your risk tolerance.