Tips To Determine Your Risk Tolerance

Every person has a level for risk tolerance and they should be concerned about it. To know exactly what the term “risk tolerance” means, you should ask your stock broker or financial planner as they will be able to assist you in ascertaining your risk tolerance. Later, you will have to work together to find out the investments that are best for you, keeping in mind your risk tolerance.


Find out the risk tolerance is a big task and you will have to look into many things. The first thing you will have to recognize is the amount you have invested, where you have invested and what are the financial goals.

 

For example, if a person just has 10 years for their retirement and has not saved anything for the future, is said to have a high risk tolerance. This is because the person has to start investing in a short span, which is generally too risky.

 

On the contrary, if a young person in his early or mid twenties starts saving for their retired life the person will have a low risk tolerance. These individual have plenty of time to accumulate lo9ads of money for a peaceful and stress free retired life.

 

However, one should understand that the level of risk tolerance does not depend on how a person defines risk. But, one’s tolerance level does play a key role in determining his/her risk tolerance. For example, let us assume that you have invested you hard earned money in the stock market and you keep a track of the market trend daily. But one day you notice that the market is slowly taking a dip, what would your reaction be? Sell on the first low or wait to watch what the market has in store?

 

If you fall under the low risk tolerance you may sell your stock holdings but on the other hand if you are a high risk tolerance person, then you would wait and watch for the market to make some further move. Financial goals have nothing to do in this particular scenario. This is a simple test to see what your tolerance over money.

 

But remember, a financial planner or a stock broker would be the right people who will help you find out your level of risk tolerance and what you can afford to gain or lose at that point of time.

When you are calculating your risk tolerance yourself, make sure you determine your financial goals and how pleasant would it be to lose some amount of money. Remember it is all a part of risk tolerance.



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