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INTELLIGENT
INVESTING:
Evaluate
Your Risk Tolerance
Specific
investment decisions are governed by risk versus reward, a concept in
which greater risk to the investor is offset by the potential for
greater reward. Investment decisions are personal in nature, and
risk tolerance is determined by such factors as your personality, age,
indebtedness, and time horizon. It is important to realize that
all forms of investing carry some inherent level of risk, so make certain
you have a thorough understanding of an investment before you
commit.
Minimize Risk
Through Diversification
Diversification
of investment holdings reduces the volatility of your portfolio and is
therefore the single most important factor for decreasing risk.
The idea is summed up quite simply by the old adage, "Don't put all
of your eggs in one basket."
Diversification
can be accomplished by investments whose holdings differ with respect to
the following characteristics: geographic location (i.e. overseas),
company size (i.e. small-cap, mid-cap, large-cap), industry type,
current financial condition (i.e. growth vs. value). Because of
their reward potential along with the relative safety provided by their
intrinsic diversity, one of the most popular types
of investments of the 1990's are mutual funds. Simply owning various investment types, such as
bonds, mutual funds,
and stocks, is another method for decreasing
risk.
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Last modified: August 16, 1999
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