New Investment Strategies For Low, Medium, and High Risk Investors

Investing is still one of the best ways to grow wealth. You can earn as much as you want as an employee, but if your money isn’t invested properly, you will end up putting far less aside for retirement than the person that invests their money. The problem with investing in today’s economic climate is the risk of losses due to volatile markets. For that reason, you have to take a hard look at your investment strategies, and even if you consider yourself a high risk investor, you have to make changes in how you allocate funds in your portfolio. The biggest change will be how to figure out how much of your money you can safely invest in stocks while the economy struggles to recover from this recession.

Aggressive Investors Seeking Less Risk

An aggressive investor is usually young and trying to increase their wealth with plenty of time before they cash out of the markets, giving them the ability to recoup any losses that occur. Your financial portfolio as a high risk investor might have concentrated on stock gains in the past. Many people in this category had at least 80% of their investments in stocks. When the stock markets take a plunge, this can decimate your portfolio overnight. Now, investors are shying away from too many stock holdings, opting for 60 to 70% instead. That leaves between 30 and 40% that can go into cash or bonds, a very low risk investment.

For Moderate Risk Investors

Moderate risk investors are usually middle-aged people who have many different financial needs, from securing a mortgage to kids’ college educations and the care of elderly parents. Moderate risk investors are going to have even less of their investment portfolio in stocks, only about 40 to 50%. In the past, moderate risk investors were those that couldn’t stand losses in excess of 15% in any single year. With the stock market taking 30 to 40% off the top of most retirement accounts in 2008, the risk tolerance for moderate risk investors decreased, and the need to add more cash resources in the event of layoff increased.

Low Risk Investors

About five years before you retire, you’ll enter a category of investing that makes it crucial to maintain whatever wealth you have for your golden years. Gone is the opportunity to invest in high risk investments since any loss of income within the next five years can severely impact your lifestyle. People in this category are elderly or getting ready to retire in a few short years. They no longer have children in the household, but high medical care costs are going to take up a lot of their disposable income. These folks may continue to put a small percentage of their money into stocks, like 20 to 30%, but the majority of their money is going into low risk investments like certificates of deposit, IRAs, and other forms of cash that will be easily tapped upon retiring.