Just because an investment bears risk doesn’t mean that you need to spend sleepless nights
worrying about your financial future. Rather, you need to manage risk in a manner that brings you peace of mind. The first step in that process is determining how much risk you can live with—and stick with. Then look at what you can do to reduce your risk. Consider these factors:
Age.
The younger you are, the more risk you should be willing to take. Time is your ally. Because, over the long term, stocks have consistently outperformed any other kind of investment, younger investors can afford more exposure to stocks. They have more time to make up for short-term setbacks.
Other investments.
Look at your current mix before deciding what to do next. Having too much money in any one kind of investment can be dangerous. Diversifying your investments—creating a mix of stocks, bonds and cash investments—reduces risk. Knowledge. Do you follow the markets? Do you read The Wall Street Journal regularly? Or do you find the subject of investing confusing or boring? Obviously, the more that you understand, the more confident you are going to feel about investing. With confidence comes a higher comfort level for taking risks. It also increases the likelihood that you’ll make the right choices.
Attitude.
Some people might say that they are satisfied if their investments just keep pace with inflation. Others would gladly accept significant risk for the chance to reap big returns. Where do you fall within the spectrum? Once you understand your tolerance for risk and the ways to reduce risk, you’ll want to evaluate your investment choices. You should do so by carefully balancing each investment’s potential risk and reward. Study your choices and make a decision on your own, or consult someone you trust for advice. Don’t act hastily or follow the pack just because you don’t know what to do
worrying about your financial future. Rather, you need to manage risk in a manner that brings you peace of mind. The first step in that process is determining how much risk you can live with—and stick with. Then look at what you can do to reduce your risk. Consider these factors:
Age.
The younger you are, the more risk you should be willing to take. Time is your ally. Because, over the long term, stocks have consistently outperformed any other kind of investment, younger investors can afford more exposure to stocks. They have more time to make up for short-term setbacks.
Other investments.
Look at your current mix before deciding what to do next. Having too much money in any one kind of investment can be dangerous. Diversifying your investments—creating a mix of stocks, bonds and cash investments—reduces risk. Knowledge. Do you follow the markets? Do you read The Wall Street Journal regularly? Or do you find the subject of investing confusing or boring? Obviously, the more that you understand, the more confident you are going to feel about investing. With confidence comes a higher comfort level for taking risks. It also increases the likelihood that you’ll make the right choices.
Attitude.
Some people might say that they are satisfied if their investments just keep pace with inflation. Others would gladly accept significant risk for the chance to reap big returns. Where do you fall within the spectrum? Once you understand your tolerance for risk and the ways to reduce risk, you’ll want to evaluate your investment choices. You should do so by carefully balancing each investment’s potential risk and reward. Study your choices and make a decision on your own, or consult someone you trust for advice. Don’t act hastily or follow the pack just because you don’t know what to do
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