So Many Shoes, So Little Money – Blog

Risk Tolerance

June 29th, 2009

Let’s continue the last post. Why is an understanding of your personal risk tolerance important? Because if you decide to invest your money in anything more complicated than a CD, you’ll need to know how much risk you can stomach without getting queasy. Your risk tolerance helps determine what kind of investments you will be most comfortable with and where you should focus your attention.

Risk tolerance is different for everyone. You need to choose the risk level which feels comfortable to you. Most of the investments we will cover in this book are not federally insured. This means that if you lose any money, it’s gone. Obviously, some people tolerate this knowledge better than others. How do you know how much risk level you can stand? This quiz will help.

1. Which Sex and The City Character do you most identify with: (a) Samantha, (b) Carrie, (c) Miranda, or (d) Charlotte?
2. Which is your very favorite pair of shoes: (a) Stilettos, (b) Stacked heels, (c) Wedges, or (d) Flats?
3. You are in Vegas! and you are down 500 dollars. How much money would you be willing to risk to break even? (a) Whatever it takes, (b) 1,000 dollars, (c) 500 dollars, or (d) nothing – you are done for the night!
4. When do you stop to fill up the gas tank in your car: (a) not until I have to, (b) when the light comes on, (c) when the tank is one-quarter full, or (d) when the tank is half full?

If you answered mostly (a) you have a fairly high risk tolerance, (b) you have a moderate risk tolerance, (c) you have mild risk tolerance and, (d) you have very little tolerance for risk.

Note:

Any woman who regularly wears high heels understands the saying “no pain, no gain”. We all endure pain and discomfort in the name of fashion—and great looking legs—but we also know that those had to have them high heels could cause blisters, calluses, corns, bunions, lower back pain, and ankle sprains. Women everywhere know flats are inherently more comfortable. We balance—pun intended—how much we want the higher heels against the possibility of any pain or discomfort. Going after higher returns on our money requires the same balancing act. You must consider the risks of placing your money in less secure and more volatile investments against the security of federally insured but possibly lower returns. If you decide that your risk tolerance is low, that is perfectly okay. Flats are always “in” for a reason!

Filed under: Investing

Tags: Investing, Style