How High’s Your Risk Tolerance?

Etsy_Tightrope WalkerA lot of lingo gets thrown around when people talk about retirement planning: asset allocation, diversification, passive versus active investing.

But there’s an essential investing concept that merits a closer look because it’s often folded into larger discussions:

Risk tolerance.

You probably know that risk is the chance that a given investment may not deliver the expected return—and that there’s a relationship between risk and return.

Putting your money into a mutual fund that focuses on medical technology, say, may expose you to more risk than buying bonds—but on the up side, it may offer the potential for bigger returns.*

This is where your risk tolerance comes in: it’s a combination of investing intuition and analysis. As you make your financial plans and investing choices, it pays to know your stomach for risk—and balance that with a hard-headed look at what the likely returns might be.

Sleep tight. Why do women in particular need to understand their risk tolerance?

*This is an example, not advice to invest in medical technology. photo source: ellensgreenart’s shop on etsy