Saturday, December 15, 2012

Personal investment styles & Risk tolerance of investors

Every person has different investment styles and risk tolerance. Some are aggressive, some are conservative, and some are moderate investors. These tendencies of investors are mainly affected by 3 factors:
1. Age
2. Financial status
3. Personality

Younger people tend to be aggressive while older people are from moderate to conservative investors.

The financial status of people is indicated mainly by the availability of current expense allowance which is the financial resource that is readily available as cash that would be used to cover for immediate expenses without withdrawing from the savings or investment portfolio. Financial status is also dependent on the stability of income over the years in the future as well as the amount of savings accumulated over the years.

The personality of investors affect their investment style. Each type of personality will respond differently to situations such as expectations of savings, rates, portfolio performance in short and long-term periods, unexpected situations including what they fear most. Personality of people can be pessimistic, careful, or optimistic. In case of a considerable drop in the value of investment portfolio, a pessimistic investor would probably move his or her investment portfolio to more conservative investments while the careful investor will monitor, assess, and study the situation and probably decide to move his or her money to balanced fund investments.

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