Choosing the right
mutual fund
for your portfolio requires evaluating the investments you already own, how the new mutual fund can help you achieve your financial goals, and how much risk you are willing to take. In the financial world, it's your tolerance for risk
that determines your investing style.
Your risk tolerance is the product of a variety of factors: your age, personality, personal experience, and financial circumstances are among the key ones. For instance, if you're approaching retirement, are responsible for the financial security of other people, have lost money on investments, or don't feel confident making investment decisions, chances are you may be a more risk-averse, or conservative, investor.
At the other end of the scale, if you're young, earning a comfortable income, and have few financial responsibilities other than your own well-being, you might be inclined to take more investment risk to reach your goals more quickly. While there are as many investing styles as there are investors, most people fall more or less into one of four broad categories:
Conservative, or those who are uncomfortable putting any money at risk
Moderate, or those who want to increase the value of their portfolios while protecting themselves from major losses
Aggressive, or those who are willing to take investment risk with the expectation of higher than average returns
Contrarian,
or those who invest in what's currently unpopular with other investors in the belief that the markets will turn around and they'll be in the best position to reap the profits
Marc Lackritz