|Question: How can I gauge my risk tolerance?|
Risk tolerance is an investment term that refers to your ability to endure market volatility. All investments come with some level of risk, and if you're planning to invest your money, it's important to be aware of how much volatility you can endure. Your tolerance for risk affects your choice of investments and the overall makeup of your portfolio.
If you are attempting to gauge your own tolerance for risk, consider the following factors:
In addition to the above, think about taking a risk tolerance test. Any number of risk tolerance tests can be found on the Internet and in books about investing. Most require that you answer a series of questions, and generate a score based on your answers. The score translates into a measure of your risk tolerance and may be matched with the types of investments that the author deems appropriate for someone with your risk profile. Although these tests may be helpful as a reference, an honest self-analysis and advice from a trusted professional financial advisor are still the best ways to determine what investment choices are best for you.