Knowing what your risk tolerance and investment style will help you choose investments more wisely. Although there are many different types of investments that one can do, there are really only three specific investment styles - and those three styles match your risk appetite. The three investment styles are conservative, moderate, and aggressive.
Of course, if you find that you have a low tolerance for risk, your investment style will most likely conservative or moderate at best. If you have a high tolerance for risk, you will likely moderate or aggressive investor. At the same time, your financial objectives also determine what style of investing you use.
If you're saving for retirement in your early twenties, you should use a conservative or moderate style of investing - but if you try to get together the funds to buy a home in the next year or two, you might want to use an aggressive style.
Conservative investors want to maintain their initial investment. In other words, if they invest $ 5000 they want to ensure that their initial $ 5000 back. This type of investor usually invests in common stocks and bonds and short-term money market accounts.
An interest bearing savings account is very common for conservative investors.
A moderate investor usually invests much like a conservative investor, but a part of their investment resources to a higher risk investments. Many moderate investors invest 50% of their funds in safe or conservative investments, and invest the rest in riskier investments.
An aggressive investor is willing to risk that other investors will not take to take. They invest higher amounts of money in riskier ventures in the hopes of achieving larger returns - either over time or in a short time. Aggressive investors often have all or most of their investment funds tied up in the stock market.
Again, determining what style of investing you want to use depends on your financial goals and risk profile. No matter what type of investments you do, but you should carefully research that investment. Never invest without all the facts!
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