What Are the Different Types of Risk Tolerance?

While it’s extremely important for any investor to always keep tabs on the market, they should also try to take stock of themselves. A trusted financial planner in Saddle Brook, NJ, will tell you that unless you know your risk tolerance, you’re setting yourself up for being a sorry investor.

Aside from providing you with a strategy to fall back on during tough times, relying on your risk tolerance also helps you keep your trading actions in check.

What Exactly Is Risk Tolerance?

Risk tolerance refers to a specific measurement that you should use to figure out how much risk you’re willing to take. It’s important to note that your risk tolerance can change depending on your financial circumstances. For this reason, you should strive to structure your portfolio to address these shifts as they come.

Understanding your risk tolerance will prevent you from making impulsive decisions when it comes to investing and trading. If you allow your emotions to get the best of you, you’ll end up making rash decisions that can hurt your future finances. Conversely, when you refuse to allow fear and anxiety to overwhelm you as you invest, you’ll be able to prioritize your objective assessments and focus on meeting your goals.

How Can You Determine Your Risk Tolerance?

Determining your risk tolerance compels you to come up with specific standards that will outline your overall investment plans and your risk tolerance. While you’re at it, you should take certain factors into account such as your number of dependents, current income, and other responsibilities.

You should also accept a higher caution level when you’re looking at the risk you can afford, especially if other people are depending on you for their financial security.

What Are the Different Types of Risk Tolerance?

The Conservative Investor

If you’re a conservative investor, you’re likely to prioritize minimal risk. This means that you prefer to keep your portfolio consistent by pursuing investments with lower returns. You’ll probably invest in government bonds, certificates of deposits (CDs), and other low-risk instruments.

The Moderate Investor

Although a moderate investor’s strategy isn’t as safe as that of a conservative investor, it doesn’t exactly pursue high-risk investments the way an aggressive investor does. If you’re a moderate investor, you may be looking for some level of risk that allows you to obtain higher returns. Most investors fall under this category.

The Aggressive Investor

You know that you’re an aggressive investor when you’re willing to accept the biggest swings in your portfolio and the longest time horizon regardless of your direction. While having the highest risk tolerance may allow you to earn higher results, it does involve trading in volatile products.

---

Who says you have to navigate the world of investing without the help of an experienced financial expert? At 1879 Advisors, we can take inventory of your overall finances before we create a plan that can help you achieve your short-term and long-term goals.

To receive curated advice that fits your risk level, contact our office today to schedule your appointment. Schedule an appointment with a financial planner today so that you can receive curated advice that fits your risk level.