Investments are by nature, risky. With any risk taken in life, I personally hope that it’s a risk I’ve taken to better my future outcome… whether it be making that first move for a kiss, or having the guts to state your opinion, risk always has two sides- positive and negative. What is the worst that can happen when you invest? You lose all your money. What’s the best thing that can happen? You increase your capital growth. With everything in life, it’s not always smart to put all your eggs in one basket. That’s why it’s crucial to understand what type of investor you are. You can head on over to our last week’s article in the Financial Database to answer a series of questions to help you better understand your tolerance to risk, and understanding.
To get your brain on the right track and to start thinking if the stock-market is right for you, have a look at the descriptions for different type of investors. I’m not going to go too in depth with this article as I just want it to help your brain juices flowing and thinking.
- Low Risk Tolerance
If you absolutely are not comfortable with taking risks then the only sound investment would be secured in cash. You might be looking for shorter term income goals, but security is your ultimate concern. Most likely you would not feel comfortable seeing any volatility in your capital.
- Below Average Risk Tolerance
If you are on the edge with taking risk, but want to delve a little bit into seeking risk-reward you can handle low volatility. You might be looking for medium term income goals and see some small growth, but happily accept the lower return potential with the below average risk taken.
- Average/Moderate Risk Tolerance
If you understand that taking risks can yield in returns then you probably are comfortable with taking an average amount of risk to have moderate returns. You might not be comfortable with high-growth high risky investments, so you would rather settle with average volatility that move in relation to the average risk taken. You might be wanting to see an average increase in your income and capital growth from medium to long-term.
- Above Average Risk Tolerance
If you like relatively big reward then you understand that you have to take a step more above the average risk. Volatility is something you are comfortable with because you are in this for the long-term for capital growth, not income. You understand your account value will have ups and downs, but are happy to see the high rewards from the higher level of risks taken.
- High Risk Tolerance
Risk is afraid of you, not the other way around. You are more than happy to take the ultimate risk to reap the ultimate return. You want to maximise your capital growth over long-term and welcome the high capital volatility with warm arms. This is for the ultimate high growth investor who understands the market movements. High risk, high volatility, high returns.
If you’re a bit confused and don’t know what type of investor you are make sure you head over to last week’s article in the Financial Database to answer the series of questions. Investing can be a scary thing and extremely overwhelming when you don’t know where to start. This is the perfect starting point, understanding your investment style.
Keep your eyes peeled for further article releases that will introduce what type of assets to invest in dependent upon your investor style!