As an investor, many of your decisions will be made based upon your investment risk tolerance. Some people are bearish, believing that the market will decline, while others are bullish, expecting that the market will rise in value. Also, investors can be classified into risk tolerance categories based upon their willingness to accept investment risk for any given level of portfolio return. Are you into high risk stocks? There are four primary classifications of investors based upon risk tolerance, including Aggressive, Moderately Aggressive, Moderate and Conservative. Do you know which type of investor you are?

Aggressive Investors

Aggressive investors are most often focused on investment growth through the use of equity investments. Their investment time frames are generally 7-10 years at a minimum, and they are willing to accept portfolio risk in any given year in exchange for an increased expected portfolio return over the long term. The investment return that they expect to earn is on average higher than the market returns annually as a whole. For example, the market typically earns on average 10% per year in returns, while an aggressive investor is seeking returns often above 12% per year on average.

Moderately Aggressive

Moderately Aggressive investors are also seeking capital growth through the use of equity investments, however, their risk tolerance is lower than that of an aggressive investor and they typically are seeking market average returns, not above market average returns. While the overall investment objectives are often similar to aggressive investors, their general portfolio mix contains more moderate investments and is often more diversified across asset classes to provide more portfolio stability. The recommended investment time frame is between 6 and 10 years.

Moderately Conservative

Moderately Conservative investors will often have a portfolio that is more blended, seeking a balance between investment growth and capital preservation. A moderately conservative investor is much less willing to accept portfolio value variations on a year to year basis and is often seeking an investment income stream from their portfolio. To balance out the risk in the equity side of the portfolio, a moderately conservative portfolio will often contain bonds, real estate and other fixed income investments. The average rate of return that a moderately conservative investor targets is between 6-8%, and the average investment time frame is generally between 3-6 years.

Conservative

A conservative investor is seeking capital preservation and is often seeking current income from their portfolio’s assets. The time frame for a conservative investor is generally under 3 years in length, causing the portfolio to often contain a higher ratio of cash assets and bond assets so that it can remain liquid as well as so that it can provide an income stream. While there can be some equity component to a conservative portfolio, the more common asset classes will be real estate, individual bonds or bond funds, cash and possibly fixed annuities.

An investor’s risk tolerance will change as their investment time frames change and as their investment objectives change. Risk tolerance is designed to serve as a guide for portfolio investment selections and should be considered prior to the selection of a given investment. You can determine what your personal risk tolerance is by evaluating your personal goals as well as by completing a risk tolerance quiz. You can also find more free investing information in the form of ebook on the stock market that can help bring you up to speed quickly.

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