Risk tolerance is an important factor to consider when it comes to investing. Risk and return go hand-in-hand, which means that low-risk investments generally generate low expected returns, while higher returns are usually accompanied by higher risk.
To know your risk appetite, there are a few factors to consider:
The younger you are, the more risks you can take because your portfolio has more time to recover from short-term fluctuations.
Income and spending habits
If your income is unstable or you have high monthly expenses, it’s better to be cautious and take lower risks.
If you need to use the money in two or three years, it’s best to save or invest in a more conservative portfolio, as it might drop below your initial invested capital under a higher-risk investment.
Overall, understanding your risk tolerance is crucial for creating a successful investment plan. By considering your age, income and spending, and investment period, you can determine the right level of risk for your portfolio and set yourself up for success.
Remember, the key to achieving financial wellness is to save and invest consistently. As the saying goes, sikit-sikit lama-lama jadi bukit. #YouCanDuit
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