Determine Your Risk Tolerance When Putting Money

Each man or woman has a risk threshold that should not be overlooked. Any good share broker or financial planner knows this, and they should make the effort to help you determine what your risk tolerance is. Then, they should act with you to find investment vehicles that do not overrun your risk tolerance.

Determining one's risk limit involves several different things. To start with, you need to know how much money 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 any money towards that end, you should have a high exposure tolerance - because you need to do some assertive - risky - investing in order to reach your financial goal.

On the other side of the coin, 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 observe your money grow slowly over time.

Bear in mind of course, that your requirement for a high risk tolerance or maybe your need for a low risk tolerance basically has no bearing on how you feel about risk. Again, there is a lot in determining 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 declining a bit, 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 seek to sell out... if you have a high tolerance, you would let your money ride and see what happens. This is not driven by what your financial goals are. This determination is based on how you perceive your money!

Again, a good financial planning consultant or stock broker should help you identify the level of risk that you are convenient with, and help you choose your investments accordingly.

Your risk tolerance should be based on what your monetary objectives are and how you look at the probability of the loss of your money. It's all linked together.

A good financial planner can also advise you on the risk factors related to various type of investment vehicles such as venture capital and seed money investing against investing in a company going public, or a reverse merger, or other public mergers.

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