I am often asked, “How do I select the actual investments within my investment account?” The answer to this question is very specific to you, your goals, and your overall RISK TOLERANCE.
I recently read on Investopedia.com, that on average, women invest more conservatively than men. Over the long run, this can result in lower returns and greater risk of your assets not keeping pace with inflation.*
It’s important to understand your own risk tolerance and what that means as part of your overall investment strategy.
In this video I explore the three questions to ask yourself to help you better understand your own risk appetite.
The first question you need to ask yourself is: what are you investing this money for? What is your goal? Is it for retirement, do you want to save money for college tuition for your children, is it to have more money ten years from now? You really need to define what the goal of this money will be. What is the purpose? Do that now.
Second question ….
The second question is: what is the timeline of this investment? Is it 10 years from now that you want to have the money available to you? It is next year? Or is it in 20 years? Defining the time and target date of this investment is key.
If it’s a short-term goal, chances are you are not going to invest the money at all as you are not willing to take on risk because you’ll need the money sooner rather than later.
If it’s a long-term goal, then you can take some risk and place your money into an investment account with a long-term growth strategy. This is where a financial planner can really assist you to make the best decisions for your investment strategy.
Third question …
The third and last question you should ask yourself is: what is my risk appetite? Just because the goal is 20 years from now, doesn't necessarily mean you are an aggressive investor. You have to know yourself and know your risk tolerance. From conservative to aggressive, where do you fall on the scale?
It’s best to deeply learn what risk means in terms of return, range, and fluctuation. Sometimes you might be more conservative just so that you can sleep better at night. Or maybe you want to be more aggressive sounderstand what that means in terms of risk and what to expect mentally, emotionally, and financially!
These are the three questions you need to start with. Everyone is so uniquely different and you probably need a professional to help guide you with your investment decisions.
After you’ve watched the video, I want to know: What do you think your risk appetite is?
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