Investors have to take risks that are appropriate to reach their financial goals. The task is to find the right balance and make choices accordingly. You must weigh the risks of an investment with the likelihood of not reaching your goal. Your risk tolerance is your ability to weather changes in the values of your investments. To be successful in investing, your tolerance for risk must be factored into your investment philosophy An investment philosophy is one’s general approach to tolerance for risk in investments, whether it is conservative, moderate, or aggressive, given the financial goals to be achieved. The more risk you take, within reason, the more you can expect to earn and accumulate over the long term. Smart investors follow their investment philosophy without wavering; they do not change course unless their basic objectives change.
Are You a Conservative Investor?
Are You a Conservative Investor?
If you have a conservative investment philosophy, you accept very little risk and are generally rewarded with relatively low rates of return for seeking the twin goals of a moderate amount of current income and preservation of capital. Preservation of capital means that you do not want to lose any of the money you have invested. In short, you could be characterized as risk averse.
Conservative investors focus on protecting themselves. They do so by carefully avoiding losses and trying to stay with investments that demonstrate gains, often for long time periods (perhaps for five or ten years). Tactically, they rarely sell their investments. Investors who are approaching retirement or who are planning to withdraw money from their investments in the near future often adhere to a conservative investment philosophy. Conservative investors typically consider investing in obligations issued by the government. Examples include Treasury bills, notes, and bonds (insured as to timely payment of principal and interest by the U.S. government), municipal bonds, highquality (blue-chip) corporate bonds and stocks, balanced mutual funds (which own both stocks and bonds), certificates of deposit, and annuities. A bond is essentially a loan that the investor makes to a government or a corporation. Thus, a bond is a debt of the issuer. Over the course of a year, a conservative investor with $1000 could possibly lose $20 and is likely to gain $50 to $60.
Are You a Moderate Investor?
Conservative investors focus on protecting themselves. They do so by carefully avoiding losses and trying to stay with investments that demonstrate gains, often for long time periods (perhaps for five or ten years). Tactically, they rarely sell their investments. Investors who are approaching retirement or who are planning to withdraw money from their investments in the near future often adhere to a conservative investment philosophy. Conservative investors typically consider investing in obligations issued by the government. Examples include Treasury bills, notes, and bonds (insured as to timely payment of principal and interest by the U.S. government), municipal bonds, highquality (blue-chip) corporate bonds and stocks, balanced mutual funds (which own both stocks and bonds), certificates of deposit, and annuities. A bond is essentially a loan that the investor makes to a government or a corporation. Thus, a bond is a debt of the issuer. Over the course of a year, a conservative investor with $1000 could possibly lose $20 and is likely to gain $50 to $60.
Are You a Moderate Investor?
People with a moderate investment philosophy seek capital gains through slow and steady growth in the value of their investments along with some current income. They invite only a fair amount of risk of capital loss. Most have no immediate need for the funds but instead focus on laying the investment foundation for later years or building on such a base. Moderate investors are fairly com fortable during rising and falling market conditions. They remain secure in the knowledge that they are investing for the long term. Their tactics might include spreading investment funds among several choices and trading some assets perhaps once a year. People seeking moderate returns consider investing in dividend-paying common stocks, growth and income mutual funds, high-quality corporate bonds, government bonds, and real estate. Over the course of a year, a moderate investor with $1000 could possibly lose $150 and is likely to gain $80 to $100.
Are You an Aggressive Investor?
Are You an Aggressive Investor?
If you choose to strive for a very high return by accepting a high level of risk, you have an aggressive investment philosophy. As such, you could be characterized as a risk seeker. Aggressive investors primarily seek capital gains. Many such investors take a short-term approach, remaining confident that they can profit substantially during major upswings in market prices. People seeking exceptionally high returns consider investing in common stocks of new or fast-growing companies, high-yielding junk bonds, and aggressive-growth mutual funds. Such investors may put their money into limited real estate partnerships, undeveloped land, precious metals, gems, commodity futures, stock-index futures, and collectibles. Devotees of this investment philosophy sometimes do not spread their funds among many alternatives. Also, they may adopt short-term tactics to increase capital gains. For example, aggressive investors might place most of their investment funds in a single stock in the hope that it will rise 10 percent over 90 days, giving an annual yield of more than 40 percent. Those shares could then be sold and the money invested elsewhere.
Aggressive investors must be emotionally and financially able to weather substantial short-term losses such as a downward swing in a stock’s price of 30 or 40 percent even though they might expect that an upswing in price will occur in the future. Over the course of a year, an aggressive investor with $1000 could possibly lose $300 and could gain $150 or even more.
Aggressive investors must be emotionally and financially able to weather substantial short-term losses such as a downward swing in a stock’s price of 30 or 40 percent even though they might expect that an upswing in price will occur in the future. Over the course of a year, an aggressive investor with $1000 could possibly lose $300 and could gain $150 or even more.
.
0 comments:
Post a Comment