Understanding Investments and Risk Types

Unless you are comfortable in your studio apartment and plan on paying the rent forever, you may want to consider investing as a way to help your money grow towards your future goals.

Investing is generally the simple concept of taking your extra cash, putting it into some type of financial tool with the goal of turning a profit. But there is a huge range of investment opportunities out there with varying degrees of risk. It is important that before you take that first step towards investing for profit that you make the effort to understand the different types of risks associated with them.

Assessing Risk

The first thing you need to do is have a conversation with yourself regarding the level of risk you feel comfortable with. You need to determine if you are conservative, moderate or aggressive with risks. By taking the time to gauge what your true comfort level is before you start investing, you can prevent yourself a lot of regret down the line.

Investment Styles

Here are the most basic investment personalities:

  • Conservative Investors – Have the goal of not losing any of their principal investment and prefer safer investment strategies and tools. Mostly cash would be invested into low-risk instruments such as CDs, money market accounts and U.S. savings bonds that would protect the principal, but pay off a lower rate of return.
  • Moderate Investors – Want to keep as much of their initial cash investment as possible but are willing to take some risks in order to get a bigger payoff. Their portfolios may have a mix of the same tools as conservative investors but may also include stocks (either through an online trading account or through a real life broker), real estate and even company bonds.
  • Aggressive Investors – They take bigger risks and go for larger payouts. Their investments are heavily involved in the stock market, new business ventures and high-risk real estate such as flipping homes or managing an apartment complex for profit.

Whatever strategy you decide to pursue, you need to ensure that you can withstand the financial blows dealt out by the possible risks you are taking. Be sure to conduct as much research as possible as all investment types by their nature require at least some degree of risk.