The Path of Wealth Creation – Knowing Your Risk Appetite

Deciding that you would like to invest in your future is only the first step down the path to wealth creation. The second step is to know what you can invest in, and, fortunately for you, the options are many!

The sheer number of investment vehicles ready and waiting to take your money is enough to make your head spin in confusion. Property investment, for one, is a lucrative industry you can dive into. In fact, you can find plenty of property investment training programs to help you become a successful property investor. Many offer personalized programs with effective property investment strategies to help you achieve financial freedom. Think Money is one such effective program.

It takes a lot of time and effort to narrow down your list of investment options considerably. But there’s a secret to speeding up that process. You have to first sit down with a professional and work to determine your risk appetite. Once your risk appetite has been measured, choosing an instrument for investment is a walk in the park.

What is Risk Appetite?

According to the Project Management Institute, risk appetite defines how much risk a person will decide to take when confronted with a specific scenario.

Our minds have a built-in “fight or flight” instinct that governs what actions we take when faced with a high-risk situation. Do we run and take flight? Or do we take a stand and fight? This instinct is very much instrumental in our decisions amid a dangerous predicament, which includes investing.

Our risk appetite dictates our investment decisions if investing is left to instinct and is not approached strategically. Of course, seeking the help of an investment professional will help you recognize what your appetite is.

Property strategists in many programs, for example, create a personalized strategic property plan for property investors and lead them to the best path for success. Think Money is one such program that is handled by talented experts.

A well-planned strategy will assist investors in identifying ideal investment vehicles to invest money on in the future.

Questions to Ask When Assessing Risk Appetite

Financial planners will ask you these three questions, among others, when assessing your risk profile. These questions include:

  • What can you afford to lose?

Investing is, no doubt, a gamble. While you can and should study your options to spot which ones can give good returns, there’s still some uncertainty that is inherent in the market. Thus, you must get a good picture of what assets you can afford to lose in case an investment doubles over.

It would be best if you also saw who’ll be affected by your decisions, and how your choices will impact their lives in case of a severe loss. Think of how the loss of money will change your life and the lives that depend on you.

  • How soon do you expect returns?

Your expectations in terms of time frames also define your risk appetite. What’s your ideal time frame for seeing returns on your investments? Short-term options offer high payouts but expose you to risks because of the volatility in short-term trading. Long term investments, on the other hand, are more stable but take a bit more time to realize returns.

  • What do you feel about risks?

How well do you understand the risk that you’re taking? Does a loss bother you a lot, or do you make mistakes in stride and move on? If you’re the sort that experiences regret in the event of a bad trade, then you’re not suitable for high-risk, high-yield investments. If you take every failure as a learning experience, however, you might have the appetite for those financial instruments.

Knowing your risk appetite will set you on the next step of your journey to financial independence. When you know your tolerance for investment risks, you can begin working towards achieving a life where money works for you instead of the other way around.