WHAT IS YOUR INVESTMENT RISK TOLERANCE IN STOCKS?

Before you run out and buy stock in this bear market, you had better know what your risk tolerance is. There are a lot of stock market beginners that are now suddenly interested in the stock market due to this panic sell off and it being in the news everyday. This has prompted many people who have never invested in stocks to suddenly be interested in how to buy stocks.

What is risk tolerance for dummies and how does it pertain to you? When you buy a stock you need to know why you are buying the stock, what you are hoping it will do, and just how low you are willing to let it go before you decide to sell. Now, of course, everyone hopes the stocks they buy will go up and they will never be faced with the grim decision of when to sell a loser. But in this market right now, most of us are faced with steep losses.

Risk tolerance is your ability to stand pain: in this case financial pain. Every one of us invests for different reasons and with a different time horizon. For instance, if you are in your 20's you have a lot longer time horizon to ride a bad market out than someone in their 70's. In fact, someone in their 70's might not want to be invested in stocks at all because they will not be working and may need the money any day or year.

Additionally, not every one has the same inner strength and the ability to take financial losses. Some of us have a very low risk tolerance meaning if their stocks go down they lose sleep, worry a lot, and let it affect their every day life. If this sounds like it may be you, then you as a stock market beginner needs to know that when you buy stocks, you can lose everything. It may be hard for you to see your hard earned money become much less while you sit and watch. In this panic market right now especially, this is a very probable result at least in the short term.

On the other hand, if you feel you have a strong stomach and can take the day to day ups and downs of this volitile market, then perhaps you have a higher risk tolerance. It is important to note for any stock market beginner or dummy that it might seem easier said than done to sit and watch your money go down. If you have never invested before and are wanting only now to learn how to buy stock and invest because of what you see going on, you might think you have a high risk tolerance but when you actually do it you might find otherwise. Sitting on the sidelines it is easy to say you have a strong stomach for losses but when you actually buy stock you might find it is not as easy to watch your stock investments go down.