Determine Your Risk Threshold While Investing
Each person has a risk tolerance that should not be omitted. Any good stock broker or financial planner will know this, and they should take the initiative to help you determine what your risk tolerance is. Then, they should work with you to find investments that do not go beyond your risk tolerance.
Determining one's risk tolerance involves many different things. First, you have to know how much funds you have to invest, and what your investment and financial goals are.
For instance, if you plan to retire in ten years, and you've not saved a single penny towards that end, you must have a high risk tolerance - because you have to do some aggressive - risky - investing in order to achieve your financial goal.
However, if you are in your early twenties and you want to start investing for your retirement, your risk tolerance will be low. You can afford to watch your money grow slowly over time.
Understand of course, that your need for a high risk tolerance or rather your need for a low risk tolerance really has no bearing on how you consider 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 daily and saw that it was dropping a little, what would you do?
Would you sell out or would you let your money go off? If you have a low tolerance for risk, you would want to sell out... if you have a higher tolerance, you may let your money ride and see what happens. This is not based on what your financial goals are. This tolerance is based on how you look at your money!
Again, a good financial planner or stock broker should help you find out the level of risk that you are comfortable with, and help you decide your investments correspondingly.
Your risk tolerance should be based on what your financial goals are and how you perceive the possibility of missing your money. It's all tied in with each other.
A good financial planning consultant can also advise you on the risk factors associated with different type of investments like venture capital and seed money investing versus putting money in a company going public, or even a reverse merger, or other public mergers.
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