How Much Risk Does Your Investment Portfolio Have

When it comes to your investment portfolio, it is important to determine how much risk you can handle. It is also important to periodically review your investment portfolio to change the risk level of your portfolio. But how do you know if your investment portfolio is too risky? Well, you can find that out by looking at the kinds of investments you have.

Stock investments

Any investment is going to have a certain degree of risk. The fact of the matter, though, is that some investments naturally carry more risk to your investment portfolio than others. Stocks are generally more risky than mutual funds. Cash is the least risky investment of all. Of course, this risk factor is why there is a greater potential for you to make more money in stocks. The riskier an investment is, the more you are likely to lose. The flip side, of course, is that greater risk and chance of earnings also translates into the chance of increased loss.

Stocks generally have a higher risk than other types of securities investments. However, stocks are also divided according to risk. Growth stocks and value stocks are two main catagories that you can use. Value stocks are important to investment strategy, as they offer a chance to build on solid companies with strong fundamentals. Growth stocks are generally newer, and have potential for growth. Having a few of these can increase the earnings of your investment portfolio, but too many can make your portfolio too risky.

Other high risk investments

While the following investments can be useful to your portfolio, you should try to limit them, as they are among the riskiest. They also require active attention and trading, so you must be interested in being an active trader.

Currency trading is quite risky. If your investment strategy calls for trading on the forex market, slow down. Your investment portfolio may be loaded with risk. The same is true when it comes to commodities and futures trading. While these can be fun ways to play with extra money, making them a standard part of your investment portfolio can be risky.

Playing it safe with your investment portfolio

You can play it safe by giving your investment portfolio a solid foundation. Mutual funds are less risky than stocks, as are some bonds. However, just as there are growth stocks, there are also growth mutual funds which carry more risk. Make sure that your mutual fund holdings offset your stock holdings; if you have growth stocks, make sure that your mutual funds are conservative.

You can also play it safe by including cash investments in your investment portfolio. Money market mutual funds have extremely low risk. Additionally, high-yield CDs are concerned investments as well. The majority of your investment portfolio should not be in cash, but adding cash to your investment portfolio adds diversity (which is important for cutting risk) and underlying stability.

Carefully considering your risk tolerance and your investment portfolio can help you re-allocate your investments in a way that reduces the risk. While there will always be risk in investing, you can protect yourself against extrememly high risk, even while building wealth.