Smart investors know their limits. They don’t put all their eggs in one basket and always have a valid reference in analyzing the market progression. It’s an approach that works well in highly competitive and risky investment platforms like cryptocurrency. This is more about strategies, not chances, although achieving financial targets is not guaranteed. If one day you decide to join this industry, another thing that you should care about is your risk tolerance. Not a single strategy will ever work unless you know the degree of risks you can manage.
Yes, it’s fine just going into the crypto market as a day trader on a short-term basis. Still, you have some amount of money at stake. It means that you have something to lose, and it’s not a good thing to be simply passive. To be a successful investor, you need to be serious about your goals. Start by studying the market and learning how you can navigate your way to success. It might take some time to see results, but once you get there, everything is all worth it.
As your guide, read on the following facts and know why your risk tolerance matters in crypto investment. Once you see any good reason to invest, Bitcoin Up is always a great platform to start.
Understanding Your Risk Tolerance
You do have a financial plan, right? This document is your reference to determine the degree of variability in investment returns that you are willing to handle. That’s also called your risk tolerance. It is an important component in investing. As an investor, you ought to have a realistic understanding of your ability and willingness to manage wild swings in the value of your investments. Otherwise, you might panic in the face of greater risks and possibly make miscalculated decisions.
There are significant factors associated with your risk tolerance as an investor. One is your age because as you near retirement; for example, you may decide to forego better opportunities in favour of your financial security. In general, younger investors have a longer time horizon and are often able to take on greater risks. But it’s not always the case because sometimes investment, no matter how risky, knows no age. Many people simply want to make more money no matter what it takes.
Here are the types of risk tolerance for different investors:
- Conservative Risk Tolerance
The main characteristic of conservative investors is that they are willing to accept little to no volatility in the investment portfolios. For example, retirees would avoid taking on substantial risks at the thought of losing the money that they earned for years. Instead, these people would target investment vehicles that are guaranteed and highly liquid. You might see yourself in this category if you prefer investment opportunities that are safer and do not expose your money to any risks.
- Aggressive Risk Tolerance
Investors who pursue their investment plans no matter the risks involved have aggressive risk tolerance. These people tend to be market-savvy, but they do their own research, too. They usually have a good understanding of the assets and their propensities that allow them to purchase highly volatile instruments. For aggressive investors, the goal is not only to maintain a base of riskless assets but also to reach maximum returns with maximum risk.
- Moderate Risk Tolerance
Some investors are willing to accept some risk to their principal but usually have a balanced approach with intermediate-term time horizons. This is what characterizes a moderate risk tolerance from others. One example is combining large mutual funds with less volatile assets, thus having a 50/50 structure. The most common strategy involves investing half of the portfolio in a dividend-paying growth fund.
As you do business in the crypto market, remember that volatility of assets is not the only risk there is. You also have to deal with unfavourable government regulations, hacking and digital theft, and the activities of whales that dictate the direction of the market. It’s a matter of how you handle these things that would largely determine the outcomes of your investment.