Determine Your Risk Limit While Investing
Each person has a risk threshold that should not be overlooked. Any good stock broker or financial planner knows this, and they should take the initiative to help you determine what your risk tolerance is. Then, they should act with you to find investments that do not go beyond your risk tolerance.
Determining one's risk threshold involves several different things. First, you need to know how much funds you have to invest, and what your investment and financial goals are.
For instance, if you are retiring in ten years, and you've not saved a single penny towards that end, you must have a high financial risk tolerance - because you need to do some aggressive - risky - investing in order to reach your financial goal.
However, if you are in your early twenties and you want to start investing for your retirement, your risk tolerance will be lesser. You can afford to watch your money grow slowly over time.
Understand of course, that your demand for a high risk tolerance or maybe your need for a low risk tolerance really has no bearing on how you feel about risk. Again, there is a lot in finding out your tolerance.
For instance, if you invested in the stock market and you watched the movement of that stock day by day and saw that it was dropping a little, what would you do?
Would you trade 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 may let your money ride and see what happens. This is not driven by what your financial goals are. This tolerance is based on how you look at your money!
Again, a good financial planning consultant or stock broker should help you identify the level of risk that you are comfortable with, and help you choose your investments correspondingly.
Your risk tolerance should be based on what your monetary goals are and how you perceive the likelihood of the loss of your money. It's all tied in together.
A good financial planning consultant can also advise you on the risk factors related to different kind of investment vehicles such as venture capital and seed money investing versus investing in a company going public, or even a reverse merger, or other public mergers.
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