Knowing what your risk tolerance & investment style are will help you pick investments more wisely. While there’s plenty of different types of investments that one can make, there’s only three specific investing styles – & those three styles tie in with your risk tolerance. The three investment styles are conservative, moderate, & aggressive.
Naturally, if you find that you have a low tolerance for risk, your investment style will most likely be conservative or moderate at best. If you have a high tolerance for risk, you will most likely be a moderate or aggressive investor. Simultaneously, your financial goals will also select what style of investing you use.
If you are saving for retirement in your early twenties, you ought to use a conservative or moderate style of investing – but if you are trying to get together the money to buy a home in the next year or four, you would need to use an aggressive style.
Conservative investors need to maintain their initial investment. In other words, if they invest $5000 they need to be sure that they will get their initial $5000 back. This type of investor usually invests in common stocks & bonds & short term money market accounts.
An interest earning savings account is common for conservative investors. A moderate investor usually invests much like a conservative investor, but will use a portion of their investment money for higher risk investments. Plenty of moderate investors invest 50% of their investment money in safe or conservative investments, & invest the remainder in riskier investments.
An aggressive investor is willing to take risks that other investors won’t take. They invest higher amounts of money in riskier ventures in the hopes of achieving larger returns – either over time or in a short amount of time. Aggressive investors often have all or most of their investment money tied up in the stock market.
Again, determining what style of investing you will use will be determined by your financial goals & your risk tolerance. No matter what type of investing you do, however, you ought to carefully research that investment. Seldom invest without having all of the facts!
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