Knowing what your risk tolerance and investment style are will help you choose investments more wisely. Even though there are many different types of investments that one can make, there are really only three specific investment styles; those three styles tie in with your risk tolerance. The three investment styles are conservative, moderate, and aggressive.
Naturally, if you find that you have a low tolerance for risk, your investment style will most likely be conservative or moderate at best. If you have a high tolerance for risk, you will most likely be a moderate or aggressive investor. At the same time, your financial goals will also determine what style of investing you use. Know your investment style to achieve financial success.
If you are saving for retirement in your early twenties, you should use a conservative or moderate style of investing. If you are trying to gather the funds to buy a home in the next year or two, you would want to use an aggressive style.
Conservative investors want to maintain their initial investment. In other words, if they invest $3000 they want to be sure that they will get their initial $3000 back. This type of investor usually invests in common stocks and bonds and short-term money market accounts. An interest earning savings account is common for conservative investors.
A moderate investor usually invests much like a conservative investor, but will use a portion of their investment funds for higher risk investments. Many moderate investors invest 50% of their investment funds in safe or conservative investments, and invest the remainder in riskier investments.
An aggressive investor is willing to take risks that other investors wonâ€™t take. They invest higher amounts of money in riskier ventures in the hopes of achieving larger returns, either over time or in a short amount of time. Aggressive investors often have all or most of their investment funds tied up in the stock market.
Understanding what style of investing you use will be determined by your financial goals and your risk tolerance. No matter what type of investing you do, however, you should carefully researchÂ each investment. Never invest without having all of the facts. Know your investment style to achieve financial success.