Make Sure You Know Your Investment Style
This is something that most people don’t even think about, but knowing what your risk tolerance and investment style are very important. This will help you choose investments that are more suited to you, and which the long run should do better as you will be less stressed and make fewer trading errors.
While there are many different types of investments that one can make, there are really only three specific investment styles, and those three styles tie in with your risk tolerance, these are conservative, moderate, and aggressive.
Naturally, if you find that you have a low tolerance for risk, your investment style will most likely be conservative or moderate at best. If you have a high tolerance for risk, and are relativily young, you will most likely be a moderate or aggressive investor. At the same time, your financial ambitions will also determine what style of investing you use.
If you are saving for retirement in your early twenties, you should use a conservative or moderate style of investing, but if you are trying to get together the funds to buy a home in the next year or two, you would want to use an aggressive style. Being an active stock market trader would be considered an aggressive style for most people.
Conservative investors want to make sure that they maintain their initial capital and make very modest gains per year, they want to sleep well at night. In other words, if they invest 00 they want to be sure that they will get their initial 00 back. This type of investor usually invests in blue chip common stocks and bonds and short term money market accounts. But remember trading stocks, even if they are blue chips can still be very risky as we have seen in the 2008/9 bear market.
An interest earning savings account is very common for conservative investors.
A moderate investor usually invests much like a conservative investor, but will use a small portion of their investment funds for higher risk investments. Many moderate investors invest 50% of their investment funds in safe or conservative investments, and invest the remainder in riskier investments.
An aggressive investor is willing to take bigger risks that other investors won’t take. They invest higher amounts of cash in riskier ventures in the hopes of achieving larger returns – either over time or in a short amount of time. Aggressive investors often have all or most of their investment monies tied up in the stock market.
Again, determining what style of investing you will use will be determined by your financial goals and your risk tolerance. No matter what type of investing you do, however, you should always carefully research the investment and never invest without having all of the facts.
If you think you are an aggressive investor and intend to trade stocks activily, make sure that you learn how to trade before making your 1st stock purchase.
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