Investment is a skill and for most people, it has become their number one priority. It is not, however, as easy as adhering to theory to understand it. Investing decisions aren’t always straightforward. Emotions play a role, and your personality style can have an impact on how you spend your money. Investing is an important way to ensure a long-term financial stability in the present and future. The money you earn from your investments will provide you with financial stability and profits. Unfortunately, investments are associated with a lot of risks.
Risk can be seen anywhere and is definitely unavoidable. In financial terms, risk can be defined as an event or an outcome’s uncertainty, whether it results to a positive or negative one. There are actually two main types of risk attitudes: the risk taker and the risk averse. However, keep in mind that there is no right or wrong approach to risk, which is why risk and risk must be thoroughly studied in order to know what needs to be done and to move forward in managing whatever the output of the risk that will be materialized in the future.
The risk taker is a type of risk attitude that requires an understanding that success necessitates an innovative and strategic approach while risk averse is a type of risk attitude that has a naïve expectation that success will simply reach them.
KEY DISTINCTIONS BETWEEN THE RISK TAKER AND THE RISK AVERSE:
- Risk-takers are often drawn to circumstances that carry a higher risk, and as a result, they often suffer significant losses. Unlike risk-taker investors, risk averse investors are not willing to take on more risk in exchange for a lower return.
- Risk takers mostly invests on stocks, mutual funds, commodities, financial derivatives, and mutual funds. On the other hand, risk averse persons invest more on life insurance, bonds, savings account, certificate of deposits, treasury securities, bullet loans, and investment grade corporate bonds.
- Risk takers are also known to be risk lovers. They are investors who are able to take on additional risk in exchange for a relatively low additional expected return. Investors that are risk averse are often referred to as conservative. They are unable to consider uncertainty in their investment portfolios due to nature or circumstance.
- Risk takers are attracted to investments with extremely high potential payouts, even though the risk of losing money is higher while risk averse investors choose to invest in liquid assets. That is, regardless of current market conditions, their money can be accessed when needed.
- The risk takers seize the moment and act too fast on a possible opportunity. People who are risk averse likes to always plan, often second-guessing their strategy.