There’s no way to avoid it, risk is part of investing. How you approach risk will have a direct impact on the short and long-term results of your investments.
Take a few minutes to think about how you feel about risk before you commit your money; it can help give you an idea of what it means for the way you approach investing.
How much risk do you feel comfortable taking when it comes to your investments? How much risk can you actually afford to take? Is there a gap between the two? Your appetite for risk will depend on your personal goals, life stage, lifestyle, timeline, and knowledge.
The more time you have to build wealth, usually, the easier it is to deal with the changing value of your investments. If you need a steady income from your investments to meet expenses now, your tolerance for risk is probably pretty low.
You also need to consider your personality. Some people who like to live on the edge in other parts of their lives like to play it safe when it comes to money, and vice versa.
Evaluating your risk tolerance is a key step in all investment decision-making.
Want to know more?
There are many types of risk that can affect an investment - even guaranteed investments have some risk. Your investment objectives will help you determine how much risk you should take. A registered financial adviser can also help you gain a better understanding of what level of risk you are comfortable with.
Find out more risk by taking The Basics of Investing class