“This above all, to thine own self be true,” Shakespeare wrote in Hamlet.
This advice applies just as well to 21st-century investing. That’s because knowing your risk comfort level is the first step toward maximizing your potential rewards.
Your “risk personality” affects everything from the ratio of stocks and bonds, the timeframe you are willing to invest, and how soon you expect to see a return on your investment.
Of course, risk is inherent with any investment—but it’s a necessary component of reward. So the most important question you should ask yourself before you invest is this: How comfortable are you with volatility?
Here’s a breakdown of the five types of risk personalities:
“Preserving capital is very important to me but I am prepared for a small amount of volatility.”
“I would like for my investments to grow but with relatively low volatility.”
“I would like for my investments to grow and can accept a normal amount of volatility.”
“My primary focus is for my investments to grow over the long term and I expect market volatility along the way.”
“My primary focus is to maximize the growth of my investments over the long term and am prepared to accept higher volatility.”
What’s your risk personality? Whatever type you are, you can create a free, customized investment plan to help get you started saving more with Dvdendo.