President's Choice Financial|helpful stuff|financial wellness|investing & saving

what is your risk profile?

Remember the last time you went through the gates of an amusement park? There's so much to see and do that sometimes the experience can be overwhelming. Understanding the type of person you are often helps you determine where to spend your time. Are you more comfortable on a merry-go-round or a roller coaster? Do you enjoy playing games of chance with impressive jackpots or do you prefer those that offer a smaller, but more achievable, prize?

The same types of choices apply to the world of investing. And, again, understanding your preferences — or risk tolerance — will help guide your decisions. Do you avoid risk at all costs or do you regularly throw caution to the wind? In other words, are you looking for a guaranteed return on your investment, even if it means earning a lower amount? Or are you willing to take a chance with riskier investments, hoping you may end up with higher returns?

Once you've figured out your risk tolerance, you'll be well-equipped to start making the investment choices that will help you reach your financial goals. Check out the categories below to get a better sense of the type of investor you are, based on your risk tolerance.

Conservative investors usually:

Have a very low tolerance for risk
Worry about how economic changes will affect the value of their investments
Want to preserve the money they've invested — even if it means missing out on the possibility of higher returns

Balanced investors usually:

Have a moderate tolerance for risk
Are willing to assume some risk for the possibility of achieving higher returns
Should have the financial means to take the chance of losing some of the money they've invested

Aggressive investors usually:

Are comfortable taking on a higher degree of risk
Are willing to deal with the uncertainty of the financial markets if it means potentially earning higher returns
Understand and accept they could possibly lose the money they're investing

It's possible that you won't fall into just one of these categories. Maybe you consider yourself aggressive where your long-term retirement goals are concerned, but conservative about the money you're saving for the down payment on a house. That's why many investors structure their portfolios to straddle these risk profiles.

For further information about building a portfolio that will reflect your risk tolerance and help you reach your goals, check out choosing the investments that are right for you.