Understanding Your Investment Risk Tolerance
Determining your investment risk tolerance is one of the most essential steps you can take. It helps you select an appropriate portfolio based on your goals and time horizon.
Your risk tolerance is determined by several factors, including personal comfort level, time horizon and financial needs.
Aggressive
No matter if you’re an aggressive investor or just trying to keep your portfolio from going completely under, understanding your investment risk tolerance is critical. Doing so helps avoid making decisions based on fear which could slow down growth.
Aggressive investing is a strategy that involves investing a high percentage of your money in stocks and other equity-type investments. The aim is to maximize capital growth over the long run.
Investment in volatile markets can be highly rewarding, but also highly risky.
When assessing your risk tolerance, one important element to take into account is your time horizon, which may be affected by various factors.
Your ability to manage risk depends on several factors, including your financial situation, age, preferences and time horizon. You can determine your capacity by taking an online risk tolerance quiz or answering questions about each investment you plan on making.
Moderate
When investing, your investment risk tolerance is the amount of market risk you are willing to accept. It depends on a number of factors such as your goals, age, portfolio reliance and comfort level with market volatility.
Moderate investors are comfortable with market fluctuations, but they are wary of taking big risks that could cause major losses. They seek long-term growth without investing all their funds in high-risk investments that could decline rapidly in value.
An experienced investor usually maintains a balanced portfolio of stocks and bonds. They may also include some CDs or other less volatile assets in their holdings.
Conservative
Selecting investments that fit within your investment risk tolerance is essential for building a successful portfolio. Doing so can help you avoid making decisions based on fear, which could ultimately cost you money in the long run.
Investing conservatively means avoiding risky, volatile assets like stocks and real estate that have historically been more vulnerable to sudden downdrafts or outright losses than safer investments. It also means avoiding high-risk accounts such as cash or certificates of deposit, which usually offer lower earning potentials than other investments and provide little protection from market volatility.
Conservative investors typically invest in short-term securities such as cash and other short-term instruments, government bonds, blue-chip stocks and other medium-term to long-term instruments that pay periodic interest incomes. They may also opt for large-cap defensive stocks which are resilient during economic downturns and provide reliable dividends.
Thrivent Financial
Understanding your investment risk tolerance, and how to align it with your objectives, is a crucial step on the road to financial security. Your Thrivent financial advisor can assist you in exploring all of your available options.
When calculating your level of risk, you should take into account factors like timeline, need for liquidity, inflation impact on money and Thrivent plans. Furthermore, understand why investing is beneficial to you and what the end goal is.
Your level of risk tolerance is a direct reflection of your attitude toward money and how much you are willing to lose when it goes down. Generally, investors with more aggressive investment strategies can expect higher returns.
Thrivent provides a range of tools to help you make the most of your money, even in times of inflation. For instance, its Mobile App allows you to manage your accounts, direct Choice Dollars and more from home or on-the-go.
