Friday, December 24, 2010

Determine Your Risk Tolerance by Ravinder Tulsiani

Determine Your Risk Tolerance by Ravinder Tulsiani

Each individual has a risk tolerance that should not be ignored. Any
good stock broker or financial planner knows this, and they should
make the effort to help you determine what your risk tolerance is.
Then, they should work with you to find investments that do not exceed
your risk tolerance.

Determining one’s risk tolerance involves several different things.
First, you need to know how much money you have to invest, and what
your investment and financial goals are.

For instance, if you plan to retire in ten years, and you’ve not saved
a single penny towards that end, you need to have a high risk
tolerance – because you will need to do some aggressive – risky –
investing in order to reach your financial goal.

On the other side of the coin, if you are in your early twenties and
you want to start investing for your retirement, your risk tolerance
will be low. You can afford to watch your money grow slowly over time.

Realize of course, that your need for a high risk tolerance or your
need for a low risk tolerance really has no bearing on how you feel
about risk. Again, there is a lot in determining your tolerance.

For instance, if you invested in the stock market and you watched the
movement of that stock daily and saw that it was dropping slightly,
what would you do?

Would you sell out or would you let your money ride? If you have a low
tolerance for risk, you would want to sell out… if you have a high
tolerance, you would let your money ride and see what happens. This is
not based on what your financial goals are. This tolerance is based on
how you feel about your money!

Again, a good financial planner or stock broker should help you
determine the level of risk that you are comfortable with, and help
you choose your investments accordingly.

Your risk tolerance should be based on what your financial goals are
and how you feel about the possibility of losing your money. It’s all
tied in together.

About the Author: Ravinder Tulsiani is a published author who has written about personal finance, real estate, self-help and online marketing.Disclaimer: The information and resources found in this blog is provided and intended for informational and entertainment purposes only and does not constitute financial, legal, or other advice of any kind. Before making a major financial decision you should consult a qualified professional.