Assess your attitude to Investment Risk

All investments carry risk of some kind. Investors should always know the risk that they are taking and invest in a manner that matches their risk tolerance. The Risk tolerance of an investor depends on the tradeoff between his ability and willingness to take risk.

i. Ability:
Ability to take investment risks is limited by how much investor has to invest, how long he has to invest it, and his needs for his portfolio to provide cash for use rather than reinvestment in the meantime.

ii. Willingness:
Willingness to take risk is shaped by investors’ personality, his life experiences, and his knowledge and education.