Determining Your Risk Tolerance
Each person has a risk Tolerance which shouldn’t be ignored. Any great broker or financial instructor knows this, and they can help you determine what your risk tolerance is and work with you to find investments that don’t exceed that risk tolerance.
Determining one’s risk tolerance entails a number of unique things. First off, you will need to know how much cash you need to invest, and what your investment and financial goals are.
For Example, if you plan on retiring in ten years, And you have not saved a single penny yet, you will have to have a high risk tolerance, since you will have to do some competitive trading to be able to attain your financial objective.
On the other side of the coin, if you are in your early twenties and you Want to begin investing for your retirement, your risk tolerance can be reduced. You can manage to see your money grow gradually with time.
Realize, of course, Your requirement for a higher risk tolerance or your Need to get a low risk tolerance actually don’t have any bearing on how you feel about risk. Again, there’s a whole lot in figuring out your tolerance.
For Example, if you entered a trade, and you see that trade go against you, what would you do?
Let’s say you’re facing a $100 reduction. Can you sell out, or do you Remain in the trade? In case you’ve got a very low tolerance for risk, you’d want to sell out. In case you’ve got a high tolerance, you’d wait and see what hap-pens.
This decision isn’t based on what your financial goals are. This Toler-ance is dependent on how you feel about your cash.
And, of course, your account size plays a vital role in determining your risk tolerance. For those who have a $2,000 account, then a $1,000 reduction might make you nervous, as you’re losing 50% of your capital.
But if your trading account size is $100,000, and you are facing a $1,000 reduction, then you are relaxed, because it’s only 1 percent of your account.
As you’ll learn, emotions are a very important factor in gambling; There-fore, it is important to take some opportunity to figure out your risk tolerance. Speak with a professional if desired. A Fantastic trading coach, financial adviser, or Agent should be able to help you determine the degree of risk which you’re comfortable with.