In section 1, we introduced what investing is, along with why people invest their money rather than save it in cash. In this section, we understand that everyone’s unique, and so are their investing goals, needs, and style.
The investment plan that’s right for you depends largely on the level of comfort that you have when it comes to risk. You can’t completely avoid risk when it comes to investing, but you can manage it.
We typically group investors into three categories for the purpose of discussing risk tolerance:
- Aggressive: those who have a high degree of risk tolerance
- Moderate: those willing to accept a modest amount of risk
- Conservative: those who have a low risk tolerance
You want to begin thinking about which category you most align with by asking yourself two questions:
- How much loss can my investment plan handle?
- How comfortable am I with risk?
This is important to figure out because when it comes to investing there’s a direct relationship between risk and potential return.
More risk means a greater potential return, but also a greater chance of loss. Conversely, less risk means lower potential returns, but less likelihood of loss as well.
This is known as the risk/return tradeoff, and it applies to investment portfolios as well as individual investments.
What it says is that you can’t have it all. There’s a relationship between growth, income, and the stability of your investments, and when you move closer to one, you generally move away from another.
It’s a dilemma all investors face. Only you can know your risk tolerance for investing, but there are tools online to help you.
In section 3, we’ll go into the different types of investments you can use along with their risk levels and tradeoffs.
As experienced financial professionals, we help clients like you figure out the best investment plan for their situation, so that you can put your money to work with peace of mind.
Please connect with us and let us help you plan for your future. We would be delighted to go on the journey