Each man or woman has a risk threshold that should not be overlooked. Any good stock broker or financial planner recognizes this, and they should take the initiative to help you determine what your risk tolerance is. Then, they need to work with you to find investment vehicles that do not overrun your risk tolerance.
Determining one's risk limit involves many different things. First, you should know how much funds you have to invest, and what your investment and financial objectives are.
For instance, if you plan to retire in ten years, and you've not saved any money towards that end, you should have a high exposure tolerance - because you need to do some aggressive - risky - investing in order to attain your financial goal.
However, if you are in your early twenties and you want to start investing for your retirement living, your risk tolerance will be low. You can afford to observe your money grow slowly over time.
Bear in mind of course, that your requirement for a high risk tolerance or maybe your need for a low risk tolerance really has no bearing on how you consider risk. Again, there is a lot in finding out your tolerance.
For instance, if you invested in the stock market and you observed the movement of that stock daily and saw that it was declining a bit, what would you do?
Would you trade out or would you let your money go off? If you have a low tolerance for risk, you would want to sell out... if you have a higher tolerance, you may let your money ride and see what are the results. This is not based on what your financial goals are. This determination is based on how you perceive your money!
Again, a good financial planning consultant or stock broker should help you identify the level of risk that you are comfortable with, and help you select your investments correspondingly.
Your risk tolerance should be according to what your financial objectives are and how you look at the probability of the loss of your money. It's all tied in with each other.
A good financial planning consultant can also advise you on the risk elements associated with various type of investment vehicles like venture capital and seed money investing versus making an investment in a company going public, or even a reverse merger, or other public mergers.
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