Investors are often interested in having optimal portfolio; one that delivers the most at the least risk. With this regard, just like ordinary businesspeople, some are aggressive while others are conservative, simply put, their appetites for risk are different. This means that investments could be a combination of stocks, bonds, and government securities which are risk free, to achieve an investments portfolio that is optimal to a given investor.
Considering conservative investors, prefer lower risks and lower returns; they are in need of safety. Due to their low appetite for risk, it follows that their returns are minimal due to their preference of government bonds and other low risk investments. As Becket (2004) indicated, settling down on guaranteed investments can be safe, but the earnings from the same can only help to keep pace with rising inflation.
Aggressive investors have an insatiable appetite for risk. They risk it all for high returns; they are the exact opposite of conservative investor. It does not always mean that they have their odds on a win, they risk losing their investments. People with an understanding of the market prefer high risk since such risks require calculated and informed moves as advised by Daniel and Hirshleifer (2015). It is just like in a swimming pool, very few will prefer the deep end, it is for the experienced and informed.
To make a worthy investment, an investor needs to have supporting facts and figures. This can only be achieved through research of company stocks. In so doing, an investor makes a valuation of the stock as well as legitimizes their decision. With experience in the game, it becomes relatively easy to take high risks and to create an optimal investment portfolio. It is for this reason why investors prefer having investment brokers and this is my approach. It is better to first understand the market, or pay someone who has the understanding rather than dip both feet in waters of unknown depth. Following the crowd can complicate things further. I prefer to start by being conservative and with time build the confidence upwards as advised by Pfau (2014).
Becket, M. I. H. (2004). How the stock market works: a beginner’s guide to investment? Kogan Page Publishers.
Daniel, K., & Hirshleifer, D. (2015). Overconfident investors, predictable returns, and excessive trading. Journal of Economic Perspectives, 29(4), 61-88.
Pfau, W. D. (2014). New research on how to choose portfolio return assumptions. Advisor Perspectives (July 1).
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