Alicia Nelson-Bell, Finance Intern
The way you balance your investments should be based on your timeline to achieve your goals and your risk tolerance. Risk is inevitable when it comes to investing, but it doesn’t need to be something that you find yourself stressing over so much that you lose sleep worrying about the amount of risk you are taking, so it is important to know your risk tolerance and choose your balance of investment vehicles accordingly. There are risk tolerance quizzes online that you can take for free to help you figure out your level of risk tolerance.
Conservative/Low Risk Tolerant Investors
If you find that you are a conservative investor or are risk adverse, you will be interested in protecting and preserving your money and you will want to put your money mainly in low risk accounts such as savings bonds, certificates of deposits (CDs), insured bank accounts or money market accounts. Conservative investors may also include those who are investing for shorter term goals of a few months or a couple of years and don’t have as much time to ride out the ups and downs of markets. This may also include people who are getting closer to reaching their long-term goals such as retirement and want to do what they can to preserve their money for their goal.
Moderate Risk Tolerant Investors
If you have a moderate risk tolerance you are able to be fairly comfortable with the rising and falling of the market because you are focused on investing for the long term and have time to ride things out, although you don’t invite in a lot of risk of loss. You may find yourself seeking capital gains more through slow and steady growth in the value of your investments along with some dividends to provide some current income. You would be more interested in high quality corporate bonds, blue chip stocks and balanced mutual funds. Individuals with this level of risk tolerance may include people who are still a few years out from reaching their long-term goals and have a little more time to ride ups and downs in the market, but also aren’t feeling too risky.
High Risk Tolerant Investors
If you have a high risk tolerance you may seek out riskier investments and not have a problem with the ups and downs of the market, but rather see them as opportunities for gains that can be used to your advantage. You may be interested in growth stocks and mutual funds, real estate, speculative stocks, futures and call options. People in the high risk tolerance category are often people who have longer until reaching their goal such as retirement, especially younger people who have significantly more time to ride the ups and downs of the market in hopes of getting some higher rewards along the way.
No matter which risk tolerance category you find yourself in, one of the most important things with investing is to get started early and contribute consistently whatever amount you can. With any type of investment goal, especially retirement, it is important to have as much time on your side as possible so you can benefit from compounding interest. Do your best not to get overwhelmed trying to figure out where to start or figuring out all the logistics of THE BEST investment or THE BEST time that you just don’t even get started. Set goals for your investing and then figure out your risk tolerance so you can use that to make plans to succeed with your goals!!
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