Determining Your Investment Risk Preference

Business Graph v7Investing money today can offer excellent rewards in the future, allowing you to make money based on market growth. However, all investment is associated with some level of risk, depending on the type of investment vehicle you have chosen. Your financial planner in Tucson can help you assess your personal risk preference and your financial goals to select the investing option that best fits your needs.

Understanding Risk and Reward

Investing is based on the concept of risk and reward—the money you invest is subject to a certain amount of risk, which is equated with the loss of your initial investment. However, your investment also has the potential to gain you significant financial rewards by growing over time. Based on this system, the greater the financial risk you are willing to take, the better the rewards you are likely to reap; however, greater financial risks can also be associated with greater losses due to market fluctuations.

Factors That Affect Risk Preference

In addition to your personal preferences, there are also several factors that influence your financial risk tolerance. Time plays a significant role in the measurement of risk versus reward, as short-term investments are susceptible to small market fluctuations, while long-term investments allow you the time to make up for potential losses. Additionally, it’s important to consider how much you can reasonably afford to lose if your investments do not return the rewards you’re expecting. Understanding how much money you are personally and financially comfortable with losing under poor circumstances can help you choose the investment vehicle that best meets this condition.

Whether you are planning for your child’s future or developing your retirement plan in Tucson, Financial Directions, LLC can help. We are dedicated to matching you with the right investment plan for your needs and preferences, helping you to comfortably grow your savings. You can learn more about our services and check out our online investor center when you visit our website, or call our office today at (520) 408-7777 to schedule a financial consultation.

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