Assessing Your Risk Comfort Level

How much risk are you content with? If you are a supplier, how much supplier risk are you willing to take? Different people have different limits and they’re all fine in their own way. The bit that matters is how much risk would suit you.

Most people are aware that some investment models carry a lot more risk than others. For example stocks and shares will carry a higher degree of risk than a regular savings account. However they are also very likely to deliver a much better return over a period of time.

Do we have different comfort levels for risk?

We do – even if we may not realize it. For example if you want to save a set amount of money over a relatively short period of time you might stick to a savings account. You won’t earn as much on it but you will ensure you get the cash you need by the time you need it (so long as you add enough cash to your account of course).

In contrast you can take a different approach if you have a much longer period of time to save over. Let’s say 10 years for the sake of this example. This is a period of time where you might be happy to take a little additional risk than normal. The stock market does have ups and downs but on the whole it does improve with age. Hence it would likely represent a higher level of risk if you were to approach it with the intention of investing over a short period instead of a much longer one.

What type of money are you investing?

All money is the same of course. However there are differences in the ways we approach a particular investment.

For example let’s say you have $5,000 to invest that you want to see grow so you can spend the proceeds on the cruise of a lifetime in, say, 10 years’ time. Conversely that $5,000 could simply be extra cash that you’d like to see grow in as productive a way as possible.

Clearly these two situations are very different from one another. You can see that in the first case it is imperative that you make the most of the cash you have to invest. However you do need to be sure you don’t lose that cash. In the second example you might be happy to take a little more of a risk. Since this is excess cash in a sense, it wouldn’t be the end of the world if you were to lose it. Hopefully that won’t happen but you might be willing to be a little more risk-friendly in this situation.

As you can see it is always important to assess the level of risk you are happy to accept when considering investments. You should also be aware your risk level is not always going to be exactly the same every time. As we have seen above there are differences that could affect the decision you make on each and every occasion.