So far this year, the U.S. stock market has been a financial roller coaster. It has not been unusual to see the Dow swing in both directions by hundreds of points.
The risk associated with an investment opportunity is crucial to understand the difference between investing and speculating. Investing is usually considered lower-risk and longer-term focused, whereas speculation is high-risk and short-term focused. An investor’s understanding of their own risk tolerance, the potential amount of money they can endure losing, is essential when building a balanced portfolio. The time over which an investment is expected to be held before it is liquidated (time horizon), your net worth, income and the ease in which an investment can be bought and sold (liquidity) all impact risk tolerance.
In addition to knowing your own risk tolerance, investing involves carefully researching business fundamentals such as quarterly financial earnings, profit margins and market positioning to make sure the opportunity fits your portfolio.
Before you invest your hard-earned money, it’s important you take control of your financial future and do some research. While no one can say with certainty whether an investment will go up in value, taking the time to evaluate past performance can give some insight into future possibility. A well-researched and diversified portfolio that matches your risk tolerance can give you the confidence you need to stay focused on long-term strategy and protect from temptation to sell during short-term price swings.
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