Risk tolerance is a huge factor in selecting an investment. Every investor has their risk appetite. But, one thing in common that before start investing our capital, we must learn how to manage risk.
The essence of investment management is the management of risks, not the management of returns. – Benjamin Graham
Finance and investments, a certain amount of risk is expected that we can understand. Of course, if we take the risk with enough conviction, the result will be rewarding.
Main determinants of an investor’s investment portfolio are age, financial status, goals, and risk tolerance.
For the safe investors it hard to digest the volatility of the investment market, and they prefer to be safe than sorry.
These are some crucial factors for low risk tolerance investors before their investments.
Understand Your Financial Goals
The most initial step to getting smart about money is to understand your short term and long term financial goal and priorities. It will help you to be financially organized. Moreover, it is a crucial step toward an economically fit lifestyle.
So, as soon as possible you understand how much you required fulfilling your goals, you can plan a better way towards achieving them. Therefore, try to commit 30 to 60 minutes each week toward financial planning with your spouse or partner. It’s an excellent habit.
Don’t Try to Be Someone Else
Each investor is different, in terms of age, family background, social background, knowledge of investment, and risk tolerance. Moreover, your investment strategy must be tailored to meet your objectives and risk profile.
And hence, an investment policy needs to be customized for every individual. It’s also unwise to follow any strategy blindly. We are all in a different situation from others, and what may suit someone else may not suit us.
Of course, you can copy the investment portfolio from successful investors. But you don’t know their strategy. The investment market is volatile. Therefore, you must fully understand it and accept with caution.
Invest Only a Portion of Your Assets into Equity Market
Experts always suggest growing gradually. So, if you cannot digest volatility of investment market, then invest only that portion of your assets into an equity market that you no need to worry about. So, it could be 10% or 15% or whatever you are comfortable with.
There are plenty of ways to start investing with a small amount. Nowadays, the number of online app-based platforms making investment easier than ever. All you need to do is start somewhere with a comfortable amount. I can bet, automatically you will be easier with time, and you will love it.
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Diversify Your Investments into Buckets
You can adapt the traditional bucket approach for standard portfolio diversification. Experts advised diversifying investments into stocks, bonds, and cash according to your age, financial goals, and risk tolerance.
Moreover, rebalance your portfolio at regular intervals to keep asset allocation within your comfort zone. But, carefully remember it should not be subject to excessive fees imposed by a fund manager.
Never Stop Learning
The success of investing is a combination of knowledge and experience. When you invest in a share of a company, you purchase some portions of that business what expecting to grow.
So, as like before buying a car or phone, you do the necessary research about its performance and quality, and the investment is no different. So, you must have a good knowledge of where you are investing.
Therefore, if you are a low-risk tolerance investor, you must keep learning. You can go through the basic risk profiling questionnaire. It will help you to understand your risk tolerance, especially when the market is in bearish phase or downward. Also, it will help you to understand your risk tolerance at real-time.
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Consequently, try giving yourself time to understand the kind of investor you are. Even professionals can’t figure out before you figure out.
You may a young or an old investor who is planning to invest in the stock market or mutual funds for the very first time, never expect you will be rich overnight. Try to start small but steady. If you make investing as a habit, you’ll be in a much stronger financial position very soon.
Assuredly, you will learn more about your true risk tolerance, and you can manage your investments on your own. What may be your risk tolerance, but the suitable portfolio is the one that let’s sleep peacefully at night, and help you to grow with time.