What Type Of Investor Are You

Which Category of Investors You Fall Into 

Very Aggressive, Aggressive or Balanced

An investor should select investment options according to his or her capacity to bear risks (which is known as risk tolerance). The capacity to bear risks varies significantly from one person to another on the basis of person's investment goals, age as well as income. As such, there are various categories into which investors fall according to risk tolerance level they have. Our aim here will be to go through what these categories are and how proper financial planning can be helpful in mitigating associated risks.

Three Categories of Investors

  • Very Aggressive
  • Aggressive
  • Balanced

Let us go through details of each of them in this section.

Very Aggressive

If you fall in the category of very aggressive investor then stock investments will be the right option for you instead of investments in fixed income bonds. However, this would mean you will have to bear significant risks and it will be necessary to take steps for managing such risk. Let us find out what steps you need to take in this regard.

How to manage risks?

financial planningAn important step you can take for managing risks will be making investments in different mutual funds. In addition to it, you will have to maintain good equity in your house, have non investment accounts as well as keep emergency funds.

Aggressive

These investors also invest in equities and such investments make up a large percentage of their portfolio. But such investors also invest in large cap stocks as well as in bonds since chances of failure (as for instance, during an economic downturn) of such investments is significantly less. Here also financial planning will be important and you will have to take required steps for reducing investment risks. 

How to manage risks?

You will have to face risks like the ones very aggressive investors face and accordingly, you will have to diversify by investing in mutual funds to reduce the risk of losing everything. Best thing to do will be to have a mix of equities (70%) and fixed income products (30%).

Balanced

If you still have about fifteen to twenty years to your retirement then you will be in the category of balanced investors. The main aim for such investors should be to generate steady growth for their investments and manage likely risks.

How to manage risks?

The biggest concern for balanced investors would be market downturn which can make a big dent in their investment portfolio. To reduce effect of market fluctuations over your portfolio what you will have to do is maintain level of equities at about 40%-50% of your portfolio as well as consider other alternative investment options (like real estate or precious metals) and their usefulness for you.

A Final Note

To conclude it can be said that choosing the right investments can be a challenge if you do not have a proper plan for the same. As such, you need to spend some time into financial planning and take into consideration your financial position to select most appropriate investment options.

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