If you are going to invest, one of the important elements you need to consider is your attitude to risk. Some people are risk-averse, which means they do not want to take the chance of their capital being risked, no matter the circumstances. There are then those that are happy to take calculated risks if it means they have the opportunity of a greater return overall. There are then other people that sit somewhere in the middle. So, how do you decide what level of risk you are comfortable with? Lets’ take a look…
Determining your attitude to risk
When it comes to investing, only you can determine what level of risk you are comfortable with. You need to think about the amount of money that you can seriously afford to lose. After all, all investments carry a degree of risk. You should then look at some high-risk investments, for example, this list of high beta stocks, and also look at some low-risk investments, so you can determine what sort of investment journey appeals to you the most. Don’t simply follow what other people are doing either. Just because your friend has made a good chunk of money investing in something does not mean that you will. You should never step out of your own risk profile.
Building a portfolio that suits your risk level
Think about how much money you can afford to lose without it having a negative impact on your life when determining what sum of money you should invest. You need to think about how much you could cope if your investments went down by 10, 30, or 50 per cent, and this will help you to put limits on yourself so that you do not hold onto a losing investment for too long.
Your time horizon
Another important factor you need to consider is your investment timeframe. This has a huge impact on your risk tolerance. If you think that you are likely to need your cash within the next five years or so, investment risks are unlikely to be worth taking because you won’t have any time on your side to weather any storms. The longer your timeframe, the most you will be able to withstand any losses in the short-term and see the recovery of your investments.
Hopefully, you now have a better understanding regarding your risk attitude in terms of investing. As you can see, there are a number of different factors that need to be considered when determining how much to invest and what investments to go for. Nevertheless, ultimately, it all comes down to you and your comfort levels. Don’t simply copy someone else – make sure your investment portfolio is right for you.