You need to know your style of investment and risk tolerance in order to choose investments more wisely. While there are many different types of investments that one can make, there are really only three specific investment styles – and those three styles tie in with your risk tolerance. These styles of investment are known as conservative, moderate, and aggressive.
If your tolerance for risk is low, then chances are your investment style is either conservative or moderate. But if your tolerance for risk is high, then you’re probably a moderate or aggressive investor. At the same time, your financial goals will also determine what style of investing you use.
You should use a conservative or moderate style of investing if you’re saving for retirement in your early twenties but an aggressive style is better if you’re trying to get together funds to buy a home in a year or two.
Maintaining their initial investment is what conservative investors want. In other words, if they invest $5000 they want to be sure that they will get their initial $5000 back. With this type of investor, they would usually invest in short term money market accounts, bonds, and common stocks.
An interest earning savings account is very common for conservative investors. Investing like conservative investors are moderate investor, except for the fact that they use a portion of their investment funds for investments with higher risk. Many moderate investors invest 50% of their investment funds in safe or conservative investments, and invest the remainder in riskier investments.
There are risks that other investors won’t take but an aggressive investor would be willing to take such risks. Hoping to get larger returns either over time or in a short period of time, they would invest higher amounts of money in riskier ventures. Aggressive investors often have all or most of their investment funds tied up in the stock market.
Again, determining what style of investing you will use will be determined by your financial goals and your risk tolerance. Carefully researching that type of investment is important regardless of which one you choose. Unless you have all the facts, don’t invest!
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