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In your financial plan, your goal
is to find a level of risk that
enables you to reach a financial
reward without undue concern.
Personal Risk Tolerance
So what is your risk tolerance? Risk tolerance is a measure of your
willingness to accept risk in exchange for
higher potential investment returns.
If you consider yourself an aggressive
investor, you are likely to accept the risk
of losing some of your investment in exchange
for earning higher potential returns. On the
other hand, if you are a conservative investor,
you are not willing to accept much risk at all.
A moderate investor is somewhere in between the
two.
Your risk tolerance may also
vary with different goals. If a
goal is vitally important then
you may not be willing to accept
much risk.
Time can also have an affect on your risk tolerance. For example, if you do not need
college tuition for 15 years, you
can accept a greater amount of
risk. The opposite is true, when you have a shorter time frame.
Investment Risks
As you consider risk in your
financial planning, remember
that different investment instruments
carry different levels and
types of risk.
However, no investment is
free of risk. "Safe" investment
instruments, such as U.S.
savings bonds, hold the risk of
inflation-eroded returns even
while preserving your principal
— the cash value placed in an
investment.
When planning
your overall investment strategy,
it is important to understand
the risks involved and minimize
their potential effects.
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Basic Money Management
Basic Money Management
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