Quick 3-Step Test: How Much Investing Risk Can You Stomach?
When there were rumors that Ford and/or GM were going to go bankrupt, I boughtin both.
I figured one company had to survive. Iin about a thousand dollars split evenly among the two.
Did it pay off? It sure did. I doubled my.
Was it risky? No question about it.
Both companies could have ended up in, and I would have been out $1,000. This is because of bankrupt companies generally lose most of their value.
Before I invested a penny in General Motors (NYSE: GM) or Ford (NYSE: F), I had to consider whether I could afford to lose the $1,000 I invested if my hunch didn't work out.
So how do you determine how much risk is just right and how muchkeep you awake at night? Ask yourself these three questions:
1. What do I need to survive?
Unless you're socking savings bonds, accounts or markets, you shouldn't invest any you'll need in the immediate future. Once you've determined you won't need the you're in the next five years, you can then determine how you'll want to invest the rest of your .away in
You want to have investments that have recently taken a hit. Some experts advise that you have six months' pay set aside that is easily accessible and in safe accounts.easily accessible for emergencies so that if you are laid off or the car breaks down, you don't have to dig into
2. What's my emotional comfort zone?
Even if you can afford to lose $1,000, you might get really upset if you did. It's okay to be a little unhappy if you lose funds versus individual or . The risk is generally much lighter. Your likely not evaporate completely, although it could drop in value.. But if it cause long-term unhappiness, you should probably think about in mutual or
Here's an easy way to determine how the loss ofaffects you. Think back to the last time you lent to a friend or family member who didn't pay you back.
Did you lose a stocks or .of sleep? If so, you probably couldn't handle buying single
3. Do I have a long-term purpose for?
Once you've answered the first two questions you've established two things about yourself: You can pay your rent or mortgage if the amount you're completely disappeared, and you know if emotionally you can handle some level of risk.
Now, it's time to look at long-term financial tolerance. Generally, part of your portfolio mutual funds. But you always want to keep in mind the number of years until you need the and evaluate on an annual how close you are to reaching your goal. The goal you’re trying to reach for is what determine your strategy.be in investments such as market and accounts and parts be in riskier ventures such as stock
For instance, if you have a goal of paying off your home in five years and you know you’ll need $50,000 to do it, you’d want enough invested in savings accounts to the be there based on the interest earned. may even be best because you can guarantee the interest rate and you know your time table., markets and
However, if the goal was you’d like to pay off your home if you were able to earn 5 to 10% on your, you’d want a more balanced portfolio with mutual funds included. You’d more at risk, but you’d potentially get the reward you want. Review your goals and your risk tolerance annually.
The financial advisor. Discuss your concerns and risk tolerance. If an doesn't understand your feelings and goals, it's time to get a new who listens and helps you make decisions you're comfortable with.Answer: Take the answers to these questions with you to your next appointment with your