Thinking through your financial needs can save you from penalties and extra taxes later.
Before launching into investing, every potential investor should first determine their own Personal Risk Tolerance for market swings (the ups and downs of securities markets).
Personal Risk Tolerance is defined as “an awareness of your level of comfort/discomfort with the market swings commonly associated with investing”. Many internet sites offer free quizzes that help investors hone in on their risk “comfort” level. These quizzes measure how you (as an investor) would hypothetically feel or react to a significant down-swing in the market.
Economists tell us that market swings---both up and down---are natural occurrences in robust financial markets. Further, they say if investors maintain a well-balanced portfolio and remain in the market for the long haul (in other words, refuse to react emotionally to the market) they will almost certainly see positive financial gains. But these same experts also say that market nose-dives generally prompt lots of handwringing and nail-biting from investors, and when nervous investors withdraw from the market during a down-swing, they won’t actually be saving their money; they will be locking in their losses.
Financial experts advise investors to base their risk tolerance level on their existing personal situation and present frame of mind, instead of how they might feel in a down-market swing. The following are a few real-time factors that will help you to determine your real-time tolerance for investing your money, before you actually invest.
Investing is a great way to grow your money and help secure your future dreams. Just remember: it’s your money and you need to decide which investments work for your real-time tolerance. Registered investment professionals can help you evaluate and understand risks and help you select from among many investment alternatives for achieving your investment goals.
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