The stock market can appear to be extremely complicated and scary for amateur stock investment. However, there is one thing that you must do prior to investing that will help eliminate the complexity of the stock market.
This one thing is assessing your risk tolerance. The term risk refers to any potential negative consequences that may result from a particular investment. Properly assessing your risk tolerance will help you determine what types of investments you should pursue, and which investments you should shy away from.
The two main risk assessments are risk-seeking and risk aversion. Risk-seeking is the idea that you enjoy inheriting risk and thus you make risky investments. Risk aversion is the idea that you hate taking risks and you will make investments that have little to no risk at all. If you consider yourself to be within the amateur stock investment field, then this should be the first thing you do prior to investing.
RISK-SEEKING INVESTMENTS
If you identify yourself as someone who is willing to take on risks through your investments, then here are some things that you may invest in:
* Cryptocurrency
* Hedge Funds
* Penny Stocks
* Short Positions
All these investments carry a great deal of risk due to the uncertainty of their future. However, while there is negative uncertainty, there is also positive uncertainty. These investments could potentially create huge returns for your investment portfolio if they do well. Risky investments can lose you a great deal of money, but they can also make you a great deal of money.
RISK-AVERSE INVESTMENTS
If you are not willing to take on risk, or willing to take on very little risk, then your investment portfolio may include these investments:
* Mutual Funds
* Bonds
* Dividend Stocks
These investments all carry very little risk because of the company/organization that backs them. All these investments would be in well-respected companies, which will almost guarantee a return on investment. However, these investments will not generate large returns. Instead, they will help increase the value of your portfolio over long periods of time.
CONCLUSION
Regardless of amateur stock investment, or professional stockbrokers, you should assess your risk tolerance prior to investing. This can help you shape your portfolio and prevent you from making costly mistakes, which could greatly hinder your investment portfolio.
