Realizing Your Investment Risk Level

Posted on May 1st, 2013 by admin

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riskWhether you are new to investing or have been doing it for years, it’s time to realize that all types of investing markets have changed. This means it’s time to either reevaluate or understand what your risk appetite is.

Many people say they only invest what they are comfortable with losing. Unfortunately, many of my clients come to me after they have had a loss and realized that saying it, meaning it, and living it are very different things.

In trading tip one at www.greenbergcapital.com, I explained how good traders and investors leave their ego at the door. Most people feel that their risk appetite is much higher then it really is. I teach all my clients to step back and think about what would happen if every penny of this investment were lost. How would it honestly affect your life?

At first the answer is always the same: “It won’t be a problem, I can handle it,” they say. Then I’ll ask my married clients how their spouses will handle it. Will this investment, either good or bad, put a strain in the relationship? Will it affect the way you live? Will it change your child’s future? And MOST of all, how will this investment affect your every day thinking?

No investment should cause you to lose sleep, have seconds thoughts, or dramatically alter your life. Of course, we all want to be able to tell people we made a killing or realized the investment of a lifetime. Keep in mind that in your life you will make both good and bad investments. The key is to never make one that if it goes wrong, can have a paradigm shift in yours or your family’s future

Investing, like all things in life, is learned. No one simply wakes up one morning and finds they’ve become a superstar. For those of you just starting out in investing and trading, start small. Your skill level will grow over time. You will learn from your mistakes as well as things that are out of your control. And you will see your skill level rising as roadblocks occur.

The truly great investors and traders handle setbacks with confidence, understanding that whatever comes across their path they can handle and often use to their advantage.

Before investing, create a checklist and ask yourself:

1)     Is this money that can be easily forgotten about if lost?

2)     What is the reason for this investment?

3)     Who brought this investment to you and what is their track record?

4)     Is this investment based on an emotional reaction or logic?

5)     Take your ego out of the equation and look at questions 1 through 4 again.

6)     What’s the worst case and can you live with it?

7)     Is there a way out of the investment if it starts going bad?

8)     How will you get out?

9)     Are you prepaid to hold the investment longer then the original plan?

If all these questions add up to a yes, then you are ready to take the next step.

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This entry was posted on Wednesday, May 1st, 2013 at 9:08 pm and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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