The Factors that Influence Risk Tolerance
One of the greatest influence on the way a person is able to handle risk is his or her age. Research indicates young investors, typically those under thirty, are more smug about the decisions that they make. The reason for this is that they feel they have more time to recuperate from any losses they face with their investments.
The primary reason that younger investors are more loss tolerant is because they rarely need immediate funds. On the other hand, older investors, especially those who are retired, rely on their investments for income. This means a loss could be detrimental.
Another factor that affects risk tolerance is personal worth. Individuals who have more money to spend are able to take on more risk, while taking the time to think of ways to negotiate market trends. If loss does occur, these people are usually able to adapt without affecting their financial status. People with less money on hand tend to become more emotionally attached to the investments that they rely on for income.
Experience is also a factor that influences a person’s tolerance for risk. Because of the time that someone spends in the market, he or she is familiar with economy highs and lows. They know about the consequences of certain decisions as well as how to recognize trends from which they can profit. These people are able to look through experienced eyes and understand overall potential for loss and gain with each investment that they make.
It seems that young, experienced investors that have a high net worth have the highest tolerance for risk. In addition, an investor with a clear understanding of his or her goals is more likely to search for guidance and direction in choosing the best investments by looking at all of the possibilities. Investing is a great way to create wealth and no matter how old or experienced you are, if you take the time to educate yourself you should do just fine.
Sean Rasmussen
Success Communicator
Aussie Internet Marketer © 2004 – 2010
Tags: choosing the best investments, investments, Wealth Creation