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

Video Transcript

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Securities distributed by State Farm VP Management Corp.

Diversification does not assure a profit or protect against loss.

Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.

State Farm VP Management Corp. is a separate entity from those State Farm® and/or unaffiliated entities which provide banking and insurance products.

Neither State Farm nor its agents provide tax or legal advice.

AP2021/04/0417

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