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Kinds of Investors: Determine Your Risk Tolerance

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Written by   106
4 months ago

Everyone is different, and so are investors. They are all different in terms of the way they think and their behaviors towards their investments.

What is Risk Tolerance?

It refers to the amount of loss an investor is willing to handle while making an investment decision. It is the amount of loss an investor can handle where he can sleep cozily each night because his investment decisions do not affect his mental and emotional state.

By assessing the risk tolerance level, the investor can plan their portfolio and will be able to make decisions accordingly.

In the world of investing, there are two principles:

  • high risk = high reward

  • low risk = low reward

Investors are usually classified into three kinds based on how much risk they are able to tolerate. These are conservative, moderate, and aggressive.

Photo from Monument Wealth Management

Conservative Investors

They are investors who "play safe" or seek stability when it comes to investing money. They are more concerned in securing their capital rather than increasing its value.

What they value is the principal over seeking appreciation of the value of their investment.

appreciation - increase

depreciation - decrease

Getting higher returns isn't top of their list. For them, they prefer to gain lower returns in order to preserve their capital associated with short-term funds.

Among the three types of investors, conservative investors take the lowest risk. Because of that, they are also the investors who get the lowest returns.

They are not worried about accepting lower returns in exchange for a higher degree of liquidity or stability. They do not seek higher profitability, but rather a higher degree of liquidity or stability.

liquidity - availability of assets

Usually, conservative investors primarily seek to minimize risk and loss of principal. What they want is to preserve their resources and not take risks that compromise their equity.

equity - another term for capital

These two things are out of their plans: losing capital and lack of liquidity.

Numerous conservative investors are beginners in the field of investing who are afraid to take risks that have short and medium-term objectives.

Recommended Investments:

  • High-yield Savings Accounts

  • High-yield Time Deposits

  • Fixed Income Mutual Funds

  • Government Bonds

  • Pag-IBIG MP2

Moderate Investors

They are investors who equally value reducing risks and elevating rewards. They don't mind accepting modest risks in order to seek higher long-term returns. Unlike the conservative investors who are mostly after short and medium terms objectives.

They may tolerate a short-term loss of capital and lower degree of liquidity in exchange for long-term appreciation. They can handle short-term loss unlike conservative investors who don't want losses. They can also manage investments that have less liquidity which is opposite to the conservative investors.

They are willing to handle more fluctuations for more reasonable returns, but are still not comfortable enough with market risk to invest their funds aggressively. Meaning, although they want to have reasonable returns, the risks that they take are not that high compared to aggressive investors.

They know the market a little better and diversify their objectives between (or among) short, medium, and long-term. They are a little more knowledgeable than the conservative investors when it comes to investments.

When it comes to objectives, conservative investors prefer short and medium-term objectives, while the moderate prefer short to long term objectives.

Their investments are marginally higher risk than conservative investments. It turns out that they are able to yield slightly above.

Eventually, they can have negative returns depending on the economy and other factors.

Recommended Investments:

  • Balanced Mutual Funds

  • Index Funds

  • ETF

  • UITF

  • Blue Chip Stocks

  • Real Estate

Aggressive Investors

They are the most "risk taker" investors. They can handle substantial risk and value maximizing returns. They aim higher returns, and so they are willing to take higher risks.

They trust that maximizing long-term returns is much better than securing the capital. For them, profitability over capital preservation.

Liquidity is not their priority. For them, they would choose profitability over liquidity.

Basically, aggressive investors are the opposite of conservative investors.

They can go through immense losses or higher levels of risk for the sake of higher levels of capital growth. They are comfortable with fluctuations or volatility over the shorter to medium term as long as they can achieve their objective of substantially increasing their real capital value over the long run.

Compared to the conservative and moderate investors, aggressive investors are more experienced in the market, they acknowledge and understand the daily movements or oscillations within the medium and long term horizon.

Recommended Investments:

  • Stock Market

  • Hedge Funds, Foreign Exchange

  • Crowdfunding, Inverse & Leveraged ETFs

  • Private Company Investments

  • Real Estate-Based Securities

  • Cryptocurrencies (wherein our favorite BCH is included)

Photo from US News Money

Have you thought by now what type of investor are you?

Have you already determined your risk tolerance?

If you haven't until now, I gotcha! 😉

Answer this quiz to find it out yourself: Investing Style Quiz

Let me know what type of investor you are! 🤑


Read more article that I wrote related to investing:

Previous Articles:

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Date Published: July 8, 2021

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Written by   106
4 months ago
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Comments

I really don't consider myself an investor. Hahaha Pero dahil nga nasa crypto world tayo, naging Aggressive investor ako. 🤭🤣

$ 0.00
4 months ago

True. High reward for the win! 🤣 Kailan kaya mag to the moon ang BCH? Hahaha 🚀

$ 0.00
4 months ago

Dun ako sa Moderate investor. I have full faith in BCH to go all the way. Hehe

$ 0.00
4 months ago

ineexplore ko pa yung investment nayan and soon balak ko magtake risk hhehehe di muna sa ngayon. salamatt dito may natutunan akooo

$ 0.00
4 months ago

good luck to your future investment! you're welcome

$ 0.00
4 months ago

I don't know yet about investment as I am still exploring maybe I'll understand this later on hihi :)

$ 0.00
4 months ago

That's fine. You can start learning it in a very basic way first so you'll not get overwhelmed :)

$ 0.00
4 months ago

Yes, I will maybe I'll just focus on writing here first before learning things like investment hehe.

$ 0.00
4 months ago

You can do it at this time if you want haha. Good luck!

$ 0.00
4 months ago

Haha I am not yet prepared lol. Did you do all this investment thingy already?

$ 0.00
4 months ago

I think I belong to the conservative investors. Hmm because Im just new and just trying things.

$ 0.00
4 months ago

That's completely okay. It's brave of you to try out things rather than not trying at all <3

$ 0.00
4 months ago

I think I can say I'm a conservative type without having to take the test. Let me take the test again and see :D

EDIT: Apparently, I'm a moderate investor as per the test :D

$ 0.00
4 months ago

Nice! Maybe you're sort of in the middle. Like you're transitioning into a moderate investor. :)

$ 0.01
4 months ago

Maybe I am indeed :D

$ 0.00
4 months ago

I am "play it safe" type now a days cause I am afraid of losing hard earned BCH 😉

$ 0.00
4 months ago

We all are really concern about losing our BCH. Hope the value will eventually go up though.

$ 0.00
4 months ago

...very conservative here.... but I think if i understand things better .. I'd go moderate.. but I don't know... Thank you for this!

$ 0.00
4 months ago

No pressure. You can learn about it slowly. At first, it all sounds intimidating. You'll eventually be a moderate soon :D Welcome. My pleasure.

$ 0.00
4 months ago