Now let’s blog a bit today about understanding investment risk. Have you ever invested in the stock market on a hot tip, only to escape with just your burnt fingers? Not to worry, it happens to a lot of people. But that can be prevented by taking the proper precautions and doing some basic research.

Years ago I would spend hours and days reading financial statements and calculating the various ratios by hand. Today via many internet sites, I can turn those days of tedious work into mere seconds and minutes. This information is available everywhere.

But still it is necessary to understand investment risk. No get-rich scheme will ever bring you peace and security. No method of investing, no category of investing, and no investment vehicle will shorten the time needed to see a financial return. If someone insists that they have a way for you to easily make a greater than average return on any investment, hang up the phone or turn and run in the other direction. With regard to your money, there will always be someone more than willing to separate you from it. Just remember that hot tips lead to burnt fingers.

If you’re like many investors, you want to get the highest possible return on your investments while assuming the least amount of risk. Unfortunately, finding a comfortable balance between risk and reward can be difficult.

When planning your investment strategy, you need to determine your risk tolerance level. The amount of risk you can handle in your portfolio depends on several factors—your age, family situation, your current income and your financial goals. The amount of risk you are willing to assume can help you determine the types of investments you may include in your portfolio.

At some later date, I will write about the various risks you must watch out for.

Content © Rich Brott, 2011

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