What Is Your Investment Style?
What Is Your Investment Style?
Knowing what your risk tolerance and
investment style are will help you choose investments more wisely. 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. The three investment styles 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, you
will most likely be a moderate or aggressive investor. At the same time, your
financial goals 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.
Conservative investors want to
maintain their initial investment. In other words, if they invest $5000 they
want to be sure that they will get their initial $5000 back. This type of
investor usually invests in common stocks and bonds and short term money market
accounts.
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 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 risks that other investors won’t take. They invest higher amounts of money
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 funds 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
carefully research that investment. Never invest without having all of the
facts!
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