When it comes to putting together investment strategies, risk tolerance plays a major role. Two different investors could look at the same strategy and have different opinions about it. One investor may focus on the potential for high returns, but the other investor may focus more on the potential for significant losses. Every investor has their own risk tolerance based on their financial knowledge, experience, or overall views about money. Once you understand what yours is, you can move forward with portfolio management and set up investment accounts that work for you.
Investments For People With A Low Risk Tolerance
If you have a low risk tolerance, you’re more willing to sacrifice potential gains if it means you won’t lose much money. An example is putting money into a risk-free investment like a certificate of deposit. The maximum return you may get is 1%, but you won’t lose any of the money you invest. These types of risk-free investments can be beneficial to earn a higher interest rate than a typical bank account, but they usually aren’t the best for building long-term wealth. Another factor to consider with these types of investments is the small interest rate may not even cover the cost of inflation, so the money you make off of it could simply be helping you break even at best.
High Risk Tolerance Could Bring Higher Rewards
Investors with a high risk tolerance put together investment strategies that have the potential for high growth. They like the idea of potentially turning $10,000 into $100,000, even though it could mean they lose the entire $10,000 they began with. A financial advisor can help you with your portfolio management, but they can’t tell you what your risk tolerance should be. This is something each investor has to know and feel comfortable with so they can put together the best investment strategies for their situation.
Most Investors Have Balanced Investment Strategies
Very few investors choose to put 100% of their money into stocks or commodities that carry a high level of risk. On the other side, most investors also won’t put all of their money into fixed income accounts. Having a balanced investment strategy is ideal so you can maximize your returns as much as possible, while also having a safety net to fall back on so you won’t lose everything. A mix of both types of investments is ideal and you can choose whether you are on the high side or the low side on the risk tolerance spectrum.
Stock Investing Info works with clients to better understand their risk tolerance. In many ways, you can’t put together solid investment strategies unless you know what your risk tolerance is. And it’s perfectly acceptable for it to change over time as your situation changes. Investing requires making adjustments along the way, although it’s important to stay on track to achieve your overall financial goals. Don’t hesitate to contact us at any time and we would be happy to help you with your portfolio management strategies.