Each individual has a risk tolerance that should not be ignored. Any good stock broker or financial planner knows, and they should make an effort to help you determine what your risk tolerance is. Therefore, they should work with you to find investments that do not exceed the tolerance of risk.
Determination of a risk tolerance involves several different things. First, you need to know how much money you will need to invest, and what are your investments and financial goals.
For example, if you plan to retire in ten years, and you have not saved a single penny that at the end, you must have a high risk tolerance - because you'll need to do some aggressive - risky - investment in order to achieve your financial goals.
On the other side of the coin, if you are in their early twenties, and you want to start investing for your retirement, your risk tolerance is low. You can afford to watch your money grow slowly over time.
Of course, realize that your need for high-risk tolerance and your need for a low risk tolerance really has no effect on how you think about risk. Again, it is a lot in determining your tolerance.
For example, if you invest in the stock market and you are watching the movement of that stock daily and saw that it was dropping something, what would you do?
Do you want to sell, or let the money go? If you have a low tolerance for risk, you'd like to sell out ... if you have a high tolerance, you should let your money ride and see what happens. This system is based on what your financial goals. This tolerance is based on how you think about your money!
Again, a good financial planner or stock broker should help you determine the degree of risk that are comfortable with, and help you choose your investment.
Your risk tolerance should be based on what your financial goals and how you think about the possibility of losing their money. It's all tied together.
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