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!
