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Attitude to Risk

Attitude to risk refers to how comfortable someone is with taking financial risks when investing money. It’s important because it helps determine the types of investments a person might choose. People who are risk-averse prefer safer investments, even if the returns are lower. On the other hand, those who are more comfortable with risk, or risk-seeking, may go for investments that have the potential for higher returns, even though they could also lose more money.

Example

A risk-averse person might invest in government bonds, which are generally safe, while someone who is risk-seeking might invest in start-up companies that could either do very well or fail.

Key points

• Reflects how much risk a person is willing to take with their money.

• Affects what kinds of investments someone might choose.

• Can change over time based on experiences or financial goals.Questions and Answers:

Quick Answers to Curious Questions

Knowing your risk tolerance helps ensure that you choose investments that align with your comfort level, reducing the chance of stress or making hasty decisions during market fluctuations.

Yes, as people age or their financial situation changes, they may become more or less willing to take risks.

They might prioritize safety and capital preservation over higher returns, especially if they need their money in the short term or have experienced losses in the past.