How to Identify Your Risk Tolerance

[Mika]

Money is not the only thing you need when you want to invest, you also need to understand your risk tolerance level. If you start investing money without evaluating your risk tolerance level, you might encounter a huge debt. You might also have to consult a financial advisor before investing, but that is another subject of discussion, here we will talk about how to identify your risk tolerance level but before that, we need to talk about what exactly is risk tolerance level?

Let’s say you invested $1000 in the stock market. If the market crashes or the company you bought goes bankrupt the value of your stock might become zero? What will this mean to you financially?

This is a loss but you can still manage your life

You become broke and you have no way to support your life

It is a loss but with hardship, you can go on.

These three different situations will help you understand your risk tolerance level?

Having a high-risk tolerance level means you can support yourself despite losing your entire life. You will face hardship but you can still go on means you have a moderate risk tolerance level and if you become broke, you have a very low-risk tolerance level. Once you know your risk tolerance level you can start investing accordingly.

 

[Nightmare]

Just as said above, money is not the only thing needed, once it comes about investment.
As an investor, you need to be mindful of the kind of risk you take.
There's a Adage that says high risks or majorly risk takers are fast money earners.
Well, after encountering this adage, it shouldn't give you the nerve to go and start up an investment without a proper risk management.
To identify your risk tolerance you need to know the level of your wealth and it's also needed of you yo invest in what so ever you can afford to lose.