Re-calculating Your Risk Tolerance

Investors have been taken through some wild swings over the last year. Last fall in 2008, investors were crushed as the markets tanked. This year, in 2009, markets are up 50% in a matter of months. The wild ups and downs have left investors wondering what to do and what course of action to take when it comes to investing.

With regards to risk, investors wanted nothing to do with the stock market prior to the move up in stock prices. Now that stocks are up, investors are back to their old ways and all of a sudden have an appetite for risk. What is the balance of risk that investors should embrace?

Use Caution and Be Skeptical

I always recommend being skeptical of the overall consensus with regards to the broad market sentiment. If everyone is too happy or upset about the market, then I'd recommend proceeding with caution.

Your primary goal is to preserve your money, the secondary goal is to grow it. By using caution you can avoid unnecessary risk and preserve your capital from potential moves lower in your risky assets.

Use Dividend Yields

By having high dividend yields in your portfolio, you can create a buffer from potential losses in share value. The dividend yield will help offset any potential loss and boost any potential gains.

Embrace Risk... Somewhat

Risk has a place in your portfolio, especially if your younger. Be cautious when it comes to jumping in with both feet (or jumping out). Move slowly and understand that risk is exactly what it is: risk.

By: Hudson D.

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The author of this post is passionate about investing and income streams for 20-somethings. He runs and operates a website at 20smoney.com that is the best resource on the web for 20-somethings and their money.