Investing always comes with risk, but how much risk should you take?

To answer that question, let's first understand the factors that determine how much risk you're taking 🤔

There's 3 major ones: time, amount of money you invest, and how risky the stocks you're investing in are 📝

1️⃣ The shorter you invest, the more risk you're taking because your investments might go down in the short term ⌛

The longer you invest, the less risk you're taking because there's more time for your returns to balance out ✅

2️⃣ The more money you invest, the more you could potentially lose, and the more risk you're taking 🤑

3️⃣ Different stocks have different levels of risk, with some being a lot riskier than others 🫨

On Bloom, you can find the risk rating of any stock on its stock page, which shows how risky it is based on its volatility 🏦

Now that we know what affects how much risk you're taking, let's figure out your risk tolerance.

💡Risk tolerance = how comfortable you are with potentially losing money on your investments 🥵

If you're okay with losing more money in pursuit of higher returns, you might have a higher risk tolerance 📈

But if preserving your money is more important to you than chasing high returns, you might have a lower risk tolerance 📉

If you're not sure what your risk tolerance is, one framework is to set a higher risk tolerance when you're young, and gradually decrease it over time as you approach retirement age ⌛

When you're young, you have more time to let your investments grow, and you probably have less money to lose than you will in the future.

So you can "afford" to take more risk, and invest in riskier stocks to try and grow your wealth 💸

But if you're older, or nearing your retirement date, it may be more important to preserve the wealth you've built up over the years rather than trying to grow it, so you might opt for a lower-risk strategy 🥚

Your risk tolerance may change over time as your goals, preferences and priorities change ⚙️

But remember: stay disciplined and tailor your investment strategy to your risk tolerance, not the other way around 🛋️