what is “risk tolerance” and how to identify yours?

Risk tolerance or appetite is the level of risk you as an investor is willing and ready to take to further your objectives before the risk outweighs the benefits.

This is usually based on your Emotional and Financial ability.

There are three risk categories:

🎲 Conservative

🎲 Moderate

🎲 Aggressive

Conservative

Assumes a lower amount of risk, but may still experience losses or have lower potential returns.

Moderate

Willing to accept a modest level of risk that may result in increased losses in exchange for the potential to receive modest returns.

Aggressive

Seeks a higher level of returns and are willing to accept a higher level of risk that may result in greater losses.

In order to identify your risk tolerance, several factors must be taken into consideration such as:

Age 🎂

The younger you are the more risk you can generally afford to tolerate, this is based on the fact that you have less responsibilities at a younger age and more time to recoup losses.

Financial Goals & Objectives 🏠

If your ultimate objective is investing for something that is extremely important to you or your family, then your risk appetite may need to be low to protect your capital.

Timeline ⏰

If you’re planning to Invest for the longer term, then your risk appetite may need to be moderate. If you are likely stay invested for a longer duration, you can generally afford to take more calculated risks.

When deciding on your investment plans, keep in mind that if you choose a strategy that’s too conservative, you might miss out on some significant returns, while if you choose one that’s too aggressive, you could end up losing the money you’ve invested.