Your risk tolerance is really important when it comes to investing because after all you have to decide how much risk to take when it comes to your investments. And what's also challenging about your risk tolerance is that it means different things to different people. If I'm investing $100, risk to some people means I lost everything. To other people, risk might mean that my $100 is now worth $90.
And yet a third way people might view risk is that I was expecting my $100 to grow to $110 and it only grew to $105. So risk tolerance really can mean a lot of things to a lot of different people. But I want you to focus on a few things as it relates to your risk tolerance.
How comfortable are you with investments? First of all, if you don't understand the investments that you're putting money into, that's a formula for disaster. So you want to stick away from that. But as it relates to investing in stocks and bonds and other types of investments, what are you comfortable with and what aren't you comfortable with? For most people, it can make sense to balance out their risk tolerance by investing in different types of investments.
Some that are aggressive and growth oriented and some that are very conservative as a way of balancing out their risk. But it's important and I want to ask you, if you invested $10,000 today, what would be too much risk for you? Where are you comfortable with it?
The markets are going to go up, they're going to go down and a lot of that is out of your control. But you can make sure you're following an investment plan that makes sense for your situation. As based on your risk tolerance, it's kind of the sleep at night factor, if you will.
You know, if you're the type of person and you have that personality where you do your investing and it's out of sight, out of mind, you're not thinking about it too much, then perhaps you can invest a little bit more aggressively. If you're up at night worried about investments and the stock market's stressing you out and you're reading about it on the internet or in the newspaper, maybe you're complaining to your spouse about it, that can be a... It's a sign that you're investing too aggressively for your personal tolerance for risk. And so the key factors when you're choosing investments are going to be always how you feel personally about risk and what the rest of your situation looks like before choosing any investments or before investing your money.