Investment Primer Part 3: Risk Tolerance

By Kevin Judge | June 25, 2018
Risk Tolerance: Every person has their own view and tolerance of risk. This is a critical fact in determining their investment strategy.

  • Some people are by nature risk averse and will only invest in risk free or low risk investments.
    1. For example, Government Bonds, Banks Deposits, and AAA investments.
  • Other people are risk takers and will take extreme risk hoping for high return. Literally gambling, enjoying the game of risk!
    1. They will purchase risky investments, such as junk bond or penny stocks and use risky strategies such as buying on margin and naked options.
  • A rational investor will vary their risk tolerance based on scenarios that are driven by several factors:
    1. How important is it to you to achieve the investment goal?
    2. How soon must you achieve the investment goal?
    3. How much of the investment can you afford to lose in a worst-case scenario?

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