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How Understanding Your Risk Tolerance Level Can Guide Your Financial Decisions, With Nils Larsen, Financial Manager
It’s important for investors to understand their comfort level with risk, according to financial manager Nils Larsen. Risky investments can mean opportunities for considerable growth, but it’s important that investors carefully consider what they’re willing to lose before making a high-risk financial choice. Here, Nils Larsen explains how investors can understand their own risk level and use it to inform their financial decisions.
What Is Risk Tolerance?
Risk tolerance describes how much risk an investor is willing to take in their investment(s). Risk tolerance can depend on several factors and may change over time. Some investors may have higher risk tolerance during times when business is going well, and lower risk tolerance when business is not as profitable. Other investors may have the opposite approach, wanting to stay conservative in their investments when profits are high, and choosing to take financial risks with the potential of a larger return when profits are low, according to Nils Larsen manager.
Behavioral research shows that the fear of losing money plays a larger role in financial decisions than the thought of gaining money, according to manager Nils Larsen. Some investors may find that seeing how their money ebbs and flows over time makes them more comfortable with risk.
According to Nils Larsen manager, it’s important for investors to understand that risk capacity and risk tolerance are different. Some investors may be able to financially withstand the potential loss that comes with a large risk, and therefore have a high-risk capacity, while still choosing more conservative investments due to low-risk tolerance.
Should Investors Go With High Or Low-Risk Options?
Nils Larsen Manager explains it’s important to consider your personal feelings about financial risk when deciding whether a high- or low-risk investment option makes the most sense for your financial needs. If you feel positive about your future business prospects, have few debts, and are not responsible for the well-being of family members, you may feel more comfortable with higher-risk investments. If you’re paying off your car or your home, you may be more comfortable with lower-risk options.
Working With A Financial Advisor
It can be hard to fully grasp the type of investments that make the most sense for your needs, and a financial advisor can help, according to Nils Larsen. When you work with a financial investor, you’ll talk about both your short- and long-term financial goals and develop a plan to help you get where you want to be. Together, you’ll talk about your comfort with various levels of financial risk. Your financial advisor can help you develop an investment portfolio that leaves you feeling comfortable while also knowing that you’re moving in the right direction.