Each individual has a risk threshold that should not be ignored. Any good stock broker or financial planner knows this, and they should take the initiative to help you find out what your risk tolerance is. Then, they should act with you to find resources that do not exceed your risk tolerance.
Determining one's risk threshold involves several different things. First, you need to know how much funds you have to put in, and what your investment and financial goals are.
For instance, if you are retiring in ten years, and you've not saved a single penny towards that end, you need to have a high financial risk tolerance - because you will need to do some aggressive - risky - investing in order to reach your financial goal.
However, if you are in your early twenties and you like to start investing for your retirement, your risk tolerance will be lesser. You can afford to follow your money grow slowly over time.
Realize of course, that your demand for a high risk tolerance or your need for a low risk tolerance really has no bearing on how you feel about risk. Again, there is a lot in finding out 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 going down slightly, 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 want to sell out... if you have a high tolerance, you may allow your money ride and see what happens. This is not driven by what your financial goals are. This forbearance is based on how you feel about your money!
Again, a good financial planning consultant or stock broker should help you determine the level of risk that you are comfortable with, and help you choose your investments correspondingly.
Your risk threshold should be based on what your monetary targets are and how you feel about the likelihood of losing your money. It's all tied in together.
A good financial planning consultant can also inform you on the risk factors related to different kind of investment vehicles such as venture capital and seed money investing versus investing in a company going public, or even a reverse merger, or some other public mergers.
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Other Readings
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- Consider All Of Your Options: Are You Planning To Make An Important Decision For Your Organization?
- How To Develop Into The Most Effective Investor: Understanding The Significance Of Diversification
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