The first step involved in investing is to determine one’s risk tolerance. Any good stock broker or financial planner knows this and they are obliged to make the effort to help you determine what your risk tolerance is. Then they should help you identify investments that do not exceed your risk acceptance.

Determining one’s risk tolerance involves several different things. First, you need to know how much money you have to invest and what your investment and financial aspirations are.

For example, if you plan to retire in ten years, and you have not saved a single cent towards that end, you need to have a high risk tolerance – because you will have to do some aggressive – high-risk – investing in order to reach your financial objective.

However on the other side of the coin, if you are just beginning and you want to start investing for your retirement, your risk tolerance will be extremely low. You can afford to watch your money grow gradually over time.

Naturally you need to understand that your need for a high risk tolerance or your need for a low risk tolerance really has no impact on how you feel about risk. Once again, there is a lot in determining your tolerance threshold.

By way of example, if you invested in the stock market and you watched the movement of that stock daily and saw that it was falling slightly, how would you react?

Would you sell out or would you leave your money ride? If you have a low tolerance for risk, you would want to sell out… if your acceptance of risk is higher, you would let your money ride and not be overly concerned. This is not based on what your financial goals are. This tolerance is based on how you feel about your money!

Again, a good financial planner or stock broker should help you determine the level of risk that you are comfortable with and help you choose your investments appropriately.

Your risk tolerance should be based on what your financial goals are and how you would react to watching your investments disappear. It’s all tied in together.