Weighing the risks
Higher-risk investments typically offer the possibility of larger rewards. Less risky investments are generally more stable and less likely to bring a larger reward.
A great way to gauge how you should invest is to figure out your investment risk tolerance (i.e. How much risk are you willing to take?). Everyone's risk tolerance is different. One factor to consider is time. If you are looking for a short term return in your investment, you might consider less risky investments. When you have more time to wait on the results of what you have invested, you might carefully consider more risky investments.
When it comes to investments and risk, what will work for one person, might not work for the next. However you decide to invest, compare investment risks by doing diligent research on your options before actually investing. For more information about investing and risk, you can visit the U.S. Securities and Exchange Commission website.
Also, check out the video for more details on risk tolerance as well as the risks and rewards of investing.
Your chapter 3 checklist
- Watch the Risk vs. Reward video.
- Download the Just the Facts: Investing worksheet.
- Find out your risk tolerance.
- Continue with the next chapter, Figure out your investing risk tolerance.