Figure out your investing risk tolerance
Figure out your risk tolerance profile based on the timing of your plans.
Chapter 4: Time horizons
There are three risk tolerance profiles to know: conservative, moderate and aggressive. The Just The Facts: Investing worksheet is a great resource to help you identify your risk profile.
What is time horizon?
Your time horizon is the amount of time you have for investing. Do you need your money in 3, 10 or 30 years? Your answer will likely influence whether you want to be conservative, moderate or aggressive with your investments. If you need an option that could maintain your money with little growth in the short term, consider a conservative approach. If you have time on your side and are willing to try to make money with some degree of risk, go with a moderate or aggressive profile instead of a conservative one. Ultimately, the choice is yours.
Risk tolerance profiles
There are three risk tolerance profiles to know. Below is an overview of each:
- Conservative – If you need an option that could maintain your money with little growth in the short term, consider a conservative approach.
- Moderate – If you have time on your side and are willing to try to make money with some degree of risk, consider a moderate approach.
- Aggressive – If you are comfortable with investments and realize the possibility of making more will typically mean risking more, then you could be ready for the aggressive approach.
Key factors to consider
- Risk vs. reward – How much risk are you willing to take, what do you expect to gain and how do you balance risk and reward?
- Risk tolerance – What is the amount of volatility and uncertainty you are willing to accept from an investment in seeking your financial goals?
- Time horizon – What is the length of time you have before needing to use the money you have invested?
Your chapter 4 checklist
- Watch the Time Horizons video.
- Download the Just The Facts: Investing worksheet.
- Think through your goals and how investments could help.
- Calculate the future value of your retirement savings.
- Continue with the next chapter, Know the difference between investments.