Investments, unlike savings and checking accounts at a bank, are not insured by the federal government to protect against market losses. But not all risks are the same. Different types of investments have different types of risks. Successful investors always consider risk and evaluate it against potential rewards when selecting an investment. One of the first steps in making an investment plan is honestly determining your personal comfort level with risk.
Risk tolerance varies from person to person.
And your own risk tolerance may change over time as your personal and financial circumstances change. Some investors can calmly accept the possibility that the value of their investments will move sharply higher or lower over very short periods of time. Other investors would have a hard time sleeping at night and might bail out of the market at the worst possible time. These investors often are more comfortable with lower levels of risk. So whether you consider your investment profile to be conservative, moderate, or aggressive, you need to determine how comfortable or uncomfortable you will be when the value of your investment moves up or down.