Investment decisions are based on many factors. One key aspect that influences decisions is risk tolerance of an individual. How much risk an individual is willing to take is as unique as his fingerprint.

Risk is a lot like eating a preferential meal. Some days you are in the mood for a royal meal with 36 items to devour. Other days you want to keep it simple and go with tried and tested comfort food. Your meal most days is a consequence of your appetite, an intake of balanced nutrition and tolerance for the chosen meal. Investing choices are also a byproduct of your current situation. Whether to go all out or simply pick a comfortable and secure choice is determined by risk tolerance. 

It is popularly believed, risk is directly proportional to reward. When it comes to money, not everyone feels the same way about risk taking. Some people enjoy the thrill of investing for higher gain and don’t mind the risk associated with it. On the other hand some people prefer to play it safe. There are people who like to take risks, just not as much as the extremists but in a balanced approach. Which one are you? What is the best investment option suited to your risk appetite? Let’s find out.

1. The ’Thali’ Lovers 

Grandiose – larger than life aggressive investors. They believe in an all or nothing approach. Their investment strategy is aligned to their goals. You’ll rarely find them infected by market sentiments. Like the versatility of a thali, their portfolio is large and balanced. They allocate assets wisely.  

Given their farsighted vision, they invest in instruments yielding interests higher than the inflation rate such as equities and mutual funds. Quite aware of how markets function, they rely on the high risk – higher return mindset. They also account the chances of losses being greater in volatile markets.

2. A La Carte Aficionados

The investors, who like to follow the order, like variety but prefer a steadfast approach. They know where to park their instruments, and what goals they wish to accomplish with them. Their risk capability is subject to moderate tolerance that is confined to a budgeted loss percentile.

Like the ala carte menu, they allocate assets to various instruments, ensuring their money yields returns that are inflation proof and growing with compound effect. 

3. Order as you like Eaters 

These people prefer to invest based on their preferences and appetite. They are conservative in their approach and like to keep their money parked in instruments that are low in risk. This gives them the mental satisfaction as well financial security of capital protection. They prefer to invest their money in instruments such as fixed deposit, PPF, recurring deposit, bonds et al.

No matter what appetite of risk taking capability the investor professes. The following facets impact his risk tolerance: 

1. Age

The closer an investor is to his retirement, the lower is his risk capability. The longer the gap between retirement and age, the higher risk tolerance an individual has. Each investor’s risk ability is based on the timeframe he has in turn determining his investment plans.

2.  Goal

Immediate goals have a shorter time horizon. In a short span of time, chances of market trends changing frequently are also highly possible. The opposite is true for long-term goals. 

Goals are another factor that plays a key role in influencing risk tolerance of an individual amidst other factors such as portfolio size and personal preference.