How to Determine Your Investment Risk Tolerance

Do you prefer the nickel slots or the high-paced game of craps? Your answer may also apply to your risk tolerance for investments. While small bets on slot machines may protect you from big losses, it also means you'll probably only see modest gains. Larger bets on a more dynamic gamble, one that has more variables and a higher risk, may result in a bigger payout, if you can stand to lose some rolls as well.

Investment strategies are simply gambling in the financial marketplace. Factors that may help you determine your risk tolerance include your own comfort level, as illustrated above, as well as your current situation regarding your age, income, marital status and employment. Risk tolerance is not a static concept; it may change several times over your life. What's important is developing a strategy that works best for you at the time, and keeping it up-to-date with your current needs and long-term goals.

If the notions of the stocks and bonds, diversifying, securities and foreign exchange bring a quizzical look to your face, don't worry. That's why there are professionals. Most people do not approach investing alone, opting instead for the knowledgeable advice and skills of financial planners and investment advisors. These pros work with you to assess your current situation, define your goals, implement and execute an investment plan, and monitor and update your investments as needed.

Some employees can ease into investing through their companies' retirement plans. These usually offer pre-set investment options that are labeled by their levels of risk. For example, programs allocate assets in varying percentages to stocks, bonds and equity strategies, divided between domestic and international investments based on goals and risk tolerance (as illustrated by fancy pie charts in the company's prospective). These predetermined programs have names such as Savings, Moderate, Growth and Aggressive, allowing you to choose which route is best for you. It may help you to start with this investment strategy until you become more familiar with investing concepts, then move on to more advanced investing.

However you decide to invest, don't forget to keep something tucked away that's easy to cash out in case of emergency. Regardless of your risk tolerance, there's always a need for a regular savings account or an old-fashioned piggy bank to provide money in a pinch.