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When you plan on investing on stocks or something else, you need to understand that there is a risk involved. You need to study whether you are willing to take on that risk - for it could bring you great rewards or great losses. As a student whose plan is to take on the future with certainty, understand what happens after you invest is very essential and critical. In a common setting for instance when you buy something using your credit card, one way to determine if that risk is a benefit to you or not is to order your credit report which will determine whether you are fit to use that credit card or not. Here are five steps you can do to understand investment risk, how tolerant you are with it and how you can plan for it. Find out your attitude toward investment risk- When you are financially stable, you can invest on a high-risk investment while you can invest on something low-risk when you are struggling with money. Think about it this way. With three options - blue, green, red - the odds of blue are 49%, green at 49% and red at 2%. Where should you put your money? Are you willing to diversify your funds so you can claim more? How about if you know the returns on both blue and green are 100% whereas at red is 1,000%? Will this change the way you invest? Analyze what needs to be done. There are, of course, losses but that is just part of the game. Analyze your assets- There are four ways you can invest. Cash is the least risky among all four but this brings in the lowest returns. Bonds, on the other hand, provide you with bigger returns but they are riskier than cash. Hard assets such as property, warehouses and offices can also bring in good returns but expect heavy losses when the prices of property plummet. Equities are the riskiest of the four and are also unpredictable. Look at time risks- It has been proven that when you invest on assets, you can achieve growth as this outstrips inflation. But that was a long time ago. If you invest today you need to know that there may be loss almost immediately. So with this, it is advised that when you do invest, it must be in the long run since time is an element here. So better invest through the safest possible way, and that is through cash. Set goals and objectives- Of course you need to set goals and objectives. This helps you how much you want to receive and when you want to receive it. Monitor your investments as well so you will know if these goals and objectives are met. Rebalance as necessary too. Spread the money- There are some investors who spread their money across asset classes which ensure them to take risks. You can also create an investment portfolio to see how much risk you are willing to take. Joy is an active blogger who shares interesting finance management tips over the web. She also advocates people to check credit reports regularly. Follow her and discover more about the exciting score planner contest where you can suggest a commercial ending and win amazing prizes.
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