Millennial Investors: Think About This When Investing! 💭
Investing is not a one-size-fits-all. The investor's personal and financial situation may differ, and more importantly, our brains function uniquely 🧠. That's why investing like your friend, who told you they made 5000% percent on some random stock, is how you should be investing your money (but maybe).
💭 You need to ask yourself - what's my risk tolerance?
⚠️ Risk tolerance = Ability to take risk + Willingness to take risk.
Two very different ways to measure "risk."
1. Ability (capacity) to take risk is the factual, hard, and quantitative data such as your current financial situation, investment objective, age, time horizon, etc. If you're a high-income earner, have no debt, and no children, your ability (capacity) to take risks is more significant than a recent graduate with a pile of student debt to pay back.
More capacity = More risk you can take.
Little capacity = Less risk you can take.
2. Willingness to take risk measures more the behavioral and qualitative data of investing. Think about it this way – if you go to Vegas, are you playing the slot machines (less risk), or are you on the blackjack ♠️ table ready to gamble this month salary (more risk)?
So considering these two factors before investing may help determine if your investments align with your risk tolerance. Risk questionnaires are available online and a great resource to provide some guidelines on how you should be investing. Consulting with a financial professional can also help determine and build an investment plan tailored to you.