One thing we always need to remember is that there will always be a certain amount of risk involved in every type of investment we make. By understanding our risk tolerance or risk profile, we will be able to better manage and shape our investment portfolio by choosing mutual funds according to our risk profile. Basically there is always three types of investors, aggressive, moderately aggresive and conservative. Aggressive investors tend to purchase high risk products containing mostly equities and invest long term while conservative investors choose low risk products in the money market such as short term, fixed-income investments. The moderately aggressive investors on the other hand, will balance out their products and have a slightly longer time horizon to maintain an average risk tolerance.
“Don’t put all your eggs in one basket”is probably the most basic rule we always hear when it comes to investing.It basically means you need to DIVERSIFYand ALLOCATE your funds to create a broad portfolio.Instead of putting ALL your money into one type of mutual fund, when you diversify you simply spread your money into more than one type of mutual fund. This way when one fails to earn, the rest of your smaller investments will still keep you afloat. Depending on the type of investment, some will have more risk than others. Portioning or allocating specific amounts depending on how high or low the risks are from each investment will also manage reduce your risk of loosing money.