FLH-19

To be a successful investor, you need to understand the financial risks of different types of investments and gauge your own tolerance for risk. Many brokerage firms offer a questionnaire that can help you determine this.

What seems safe to one person may be deemed very risky by another. Your tolerance for risk is how you react when your investments decline in value. Someone who doesn’t like risk is considered risk averse. A risk-averse person is willing to miss out on higher rates of return in exchange for financial safety. A more risk-tolerant person is willing to accept investment losses in exchange for potential higher returns.

There is no right or wrong risk style that you should adopt. It just comes down to your personal feelings and preferences for how you want to manage your investments.