Understanding Risk Tolerance and Other Investment Advice for New Grads

risk tolerance

The time has come—after four long years, you’ve finally graduated. Congratulations! But now that you’re done, what’s next? Are you planning to travel? Do you have a job lined up? Have you thought about how you’ll pay off your student loans? With all those things to consider, and not a ton of money in the bank, setting up an investment strategy probably isn’t at the top of your to-do list. But given its potential impact on your long-term success, it’s worth prioritizing this sooner rather than later.

Navigating Risk Tolerance

Regardless of how much money you have to play with, building an investment plan will help ensure that your money is working for you and helping you reach your financial goals. It’s easier to build this plan when you’re just out of school and still setting the stage for what your adult life looks like, instead of a few years down the road when you could get comfortable living paycheck to paycheck. But before you decide on how you’ll invest your funds, you should determine how much of an appetite for risk you have.

When it comes to investing, risk tolerance represents the amount of market volatility and variability you’re willing to take on. This is often defined by financial advisors using a questionnaire or a calculator that indicates whether you have an aggressive, moderate, or conservative risk profile.

What’s Your Risk Tolerance?

For new grads who didn’t major in Econ or Finance, this might sound like a whole new language. But each of these profiles are really defined by one or two identifiable traits. Aggressive investors will rely heavily on the stock market, investing in high-performing stocks that offer the possibility of significant returns, but risk losing value when the market turns. More conservative Investors, meanwhile, are more attracted to guaranteed returns, regardless of how small those might be. The latter can take the form of high-yield savings accounts or certificates of deposit.

It’s important to find the right balance for you. If investors don’t take on enough risk to satisfy their appetite, they may be disappointed by the small returns that come from a “slow and steady” approach. On the other end of the scale, investors that take more risk than they can stomach might panic when the market is on a downswing and fall into the trap of selling low and losing out on potential gains.

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Getting Started: Investing Fundamentals

Investing in your future can take many forms. For many recent grads, a low-risk investment could be contributing to your employer-sponsored retirement plan, such as a 401(k). This is particularly appealing if your employer offers matching contributions. If you’re looking for alternative investment avenues that offer more near-term returns, there are a few things you can do.

  1. Familiarize yourself with the investment landscape. Speak to a financial advisor; many offer complimentary first-time consultations or you can see if your parent’s advisor is open to extending their services to you. You can also talk to someone in your circle who understands the markets. Look out for advisors who offer complimentary primary consultations Sign up to business newsletters. This insight will help you determine your risk profile and what options exist for you.

  2. Set up a practice investment account. There are a number of online tools available for budding investors to create dummy accounts that reflect real-time market activity. If you start to feel panic when your account value dips, you may have a low tolerance for risk.

  3. Avoid hefty fees. Once you’ve landed on an investment strategy, compare the services available to you and evaluate what fees you’re willing to pay given your risk profile. Remember that individual trades often have associated fixed fees, whereas investing in a mutual fund might include paying a percentage of your account to the fund manager.

  4. Remember to think long term. If you set up an investment portfolio, it’s hard to fight the impulse to check your account balance every day—but that can be more stress-inducing than not. Unless you’ve invested in individual stocks, take a hands-off approach and only check your portfolio monthly, rather than daily.

At Citadel, we offer personalized financial services and investment advice that aligns with your financial goals, whether they include buying a house, paying off your student debts, or saving for your wedding day. Our financial advisors will assess your risk tolerance and find the appropriate investment vehicles that match your profile and help you get off to a good start, right out of the graduation gates. To get started on your wealth journey, contact Citadel today.

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