Knowing your risk tolerance and capacity helps you choose investments that match your comfort level and financial situation. Stocks, bonds, funds, and ETFs carry different levels of risk and reward. Generally, higher returns mean higher risk, and diversifying across investments can help reduce risk.
Risk Tolerance
- Emotional Comfort: How would you feel if your investments lost value? If it worries you, you may prefer lower-risk options.
- Goal Timeline: Long-term goals (like retirement) can handle more risk, while shorter-term goals (like a big purchase) may need lower risk.
Risk Capacity
- Financial Stability: A stable income and savings may allow for more risk; if not, consider safer choices.
- Timeframe: More time until you need the money means you might handle more risk.
- Dependents and Expenses: High financial commitments and expenses can limit your ability to take on risk.
Balance your comfort level with what your finances can handle and reassess as your goals or finances change. For both DIY investing and choosing a LifePlan, it’s essential to understand your tolerance and capacity for loss.
If unsure, consult an Independent Financial Adviser (IFA) or explore our Managed Portfolio Service for guided support.