Your investing profile is determined by three major aspects. All of them will evolve as your investment experience evolves so check back every now and then to see if your profile has shifted.
Can you live with the risk that your investments will decline in value, even temporarily? Your tolerance for risk and volatility are part of your personality, and also a product of your financial position. Simply put, people with less money shouldn’t take big risk with their limited funds. But even wealthy investors may prefer to stick to conservative investments. If you are going to lie awake at night worrying about stock market fluctuations, then risky investments are probably not for you. But remember that risk is a major part of what gets rewarded in capital markets, so although your low-risk investments may not see big losses, they may not see big gains either.
Time Horizons and Goals
When will you need your money? A young couple start out will have a very different time-horizon in mind than a retiree. Because short term and long term investing are very different, it is important to know if you want your investments to be there as a source of income in 30 years, or for a nearer-term goal like purchasing a home.
Your investing knowledge should influence your investing profile. If you are an expert, then you can closely manage your stock and bond investments and move them around as markets change. If you are newer to investing then you will probably want to rely on experts to do that for you, through the use of mutual funds and pooled products.
Tip: What's Your Investing Knowledge?
Expert: I understand the international market dynamics of the major asset classes.
Moderate: I have a bit of experience with basic investments.
Beginner: This is all new to me!