How much risk is right for you?

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Do you enjoy taking risks or break into a cold sweat at the very thought?

How we feel about risk, money and personal finances is often influenced by our individual circumstances, personalities, income or previous financial history. Understanding your risk profile – exactly how much risk you feel comfortable with – is extremely important and can help determine the right type of investment for you.

The level of risk a single person with a great job is prepared to accept might be completely different to that of a single income family or a self-funded retiree. The last thing you want is to enter into the wrong type of investment which can leave you feeling financially or emotionally stressed – or both!

So how do you figure out the right level of risk for you?

There are many different factors affecting an individual’s attitude toward risk and personality plays a big part. Conservative investors, for example, tend to worry more and have a lower risk tolerance than others. Your financial status, age and existing commitments also play a huge part in determining your investment choices.

Some people are comfortable with the volatility of the sharemarket while others prefer an investment they can touch in the form of bricks and mortar.

All investments carry some level of risk so it is important for investors to work out how much they feel they can carry before entering into an investment.

Property can be very rewarding but it is usually a long-term investment – and you need to be clear about your priorities. For instance, if you have a family to support and don’t have a huge income, you might value rental yield and a strong occupancy rate over capital growth. If you are single however, you might be happy to dip into your pocket each month on a negatively geared property you believe will grow in value.

All investments carry some level of risk so it is important for investors to work out how much they feel they can carry before entering into an investment. You can certainly limit your exposure by choosing mainstream property investments over get-rich-quick schemes by managing your finances so you can meet repayments, even if the property is vacant for a period of time, and taking out quality landlord insurance.