Determine Your Investment Style

Knowing your investment style will go a long way in helping you make investment decisions.

Perhaps you want a potentially high level of return on your investments and are willing to take on higher levels of risk to get it. On the other hand, you may be someone who is most comfortable with a lower level of risk and slower, but less volatile potential investment gains.

Risk simply means the level that your principal investment fluctuates, causing shares to be worth more or less than the original cost when sold. Assessing your tolerance for risk is the major factor in determining your investment style.

How much risk can you tolerate?

Consider the following statements. Your thoughtful response to each one will help you evaluate your risk tolerance and set the stage for establishing your investment style.

Now study your responses. If you responded to Statements 1 and 2 closer to level 1, you are probably less willing to tolerate a higher level of investment risk. Responses at levels 4 and 5 suggest you may be more tolerant of risk. In reference to Statement 3, financial experts generally advise that the closer you are to using your investment, the less risky your investments should be.

Where does your investment style fit?

Generally, younger people are more willing to assume greater investment risks. Retirees, on the other hand, are usually more conservative. Financial planners commonly use five categories to classify risk tolerance:

• Conservative income-oriented investors seek to preserve principal. Asset growth is secondary.
• Moderate income-oriented investors seek to generate and maintain steady income at the expense of little, if any, asset growth.
• Conservative growth-oriented investors seek to increase portfolio value while also producing a moderate amount of income.
• Moderate growth-oriented investors seek to grow assets and income while tolerating moderate fluctuations in value.
• Aggressive growth-oriented investors seek to maximize returns while tolerating a high fluctuation in asset value.

Are you a short-term or long-term investor? Your response will help to determine the kinds of investment vehicles that best fit your style.

Short-term investments — those with time horizons of five years or less — are usually considered more risky. Investments of more than five years duration are generally considered longer term. Although long-term investments often include high-risk elements, the longer time horizon potentially helps to even out the volatility of investment risk.

Investment choices are plentiful

Perhaps you've heard the expression, "variety is the spice of life?" Regardless of what your financial investment style is, there's something for you — stocks, bonds, money market securities, mutual funds, managed accounts, IRAs, variable insurance products and many others.

Sound investment programs aim to diversify the content of the portfolio to help minimize risk and maximize returns. Everything depends on what your investment goals are and how risk-tolerant you are willing to be.

Balance risk with the time you have to reach your goals

Generally, the more time you have before you need the money, the more risk you may wish to take in seeking higher returns. Once your choices are made, stick with them until your situation or objectives change.

Many investment products are sold by prospectus only. By law, the investment provider must give you a prospectus to review before you invest. Read it carefully. The prospectus will help you to identify the potential risk of the investment you are considering as well as provide other information about the investment objectives, fees, charges and expenses as they apply to the return on your investment.

In the end, it's up to you. Determine your investment style, and then apply it as you make financial decisions — today and in the years ahead.