Risk tolerance is identified with the number of risks in the market, such as volatility or variations that an investor can withstand. In general, risk tolerance is measured using a calculator or with the help of a questionnaire on prediction of Bitcoin.
Financial planners and analysts consistently use risk tolerance to define investors and investment patterns as moderate, conservative, or aggressive.
This risk tolerance can withstand the downfalls when things go downhill. In addition, knowing about it allows you to define a protocol to direct investments safely, which will ensure the complete success and development of the business.
How is the Personal Level of Risk Tolerance Measured?
It is a complex process since it depends on some factors, such as the attitude assumed towards risk and objectives; everything can vary according to the crucial moment and personal circumstances. Therefore, in carrying out the calculation to measure risk tolerance, the following aspects must be studied:
Identify What the Return Objectives Are; the higher the goal relative to the investment, the higher the risk tolerance. To understand better, let’s see if we aspire to earn 1%, risk tolerance will be low, but if the profit goal were 10%, risk tolerance would be much higher.
Define What the Period Used to Meet the Objectives Is; Risk tolerance decreases the more minor the investment time or uncertain time that can pass until its recovery.
The Attitude Towards Risk; is the most subjective aspect of this study and in which personal experiences, mainly current ones, have the most repercussions.
For example, the stock markets have gone through a recent fall due to the destabilization of the economy due to the COVID19 crisis, which is why people have behaved more cautiously, afraid of investments.
A personal aspect that should not be overlooked is the attitude towards mistakes and the response to that moment. An indispensable technique for measuring risk tolerance is often the benefits and convenience of investments.
The Cryptographic Dimension and Risk Tolerance
Everything gets more complex when CRYPTOCURRENCIES are added to our investments.
Compared to other assets, these digital currencies are sensitive to extreme levels of volatility, 2017 when the total market capitalization went from $18 billion to over $825 billion, representing a variability of approximately 5,000%.
Very certainly, these majestic values of growth are not sustainable. By 2018, the crypto market suffered a tenacious and rapid decline, registering losses of 80% of its value.
This decline caused naysayers to warn that Bitcoin would not last long, mainly due to a more severe crash than the one that caused the dot-com bubble to burst in 2000.
This volatility has given strength to critics to point out that cryptocurrencies are not day-to-day investment strategies. However, Mike Novogratz, CEO and creator of Galaxy Digital believes in a very different way than the previous one.
He considers himself the advocate of cryptocurrencies, deducing that it is a grave mistake not to invest in Bitcoin, declaring for the news portals that it is essential that each investor owns 1 to 5% of his wallet in cryptocurrencies.
Novogratz’s influence has touched the investment capacity of people like Tim Enneking, who is the CEO of Digital Capital Management, who stated for Forbes the following, many investors are usually somewhat foolish by not investing in crypto assets, and also limited a warning, who would be equally silly if they made significant investments.
The cryptographic world is not complex, but it must be analyzed and studied before becoming part of it through investments.
Cryptocurrencies are the most feasible way of earning and investing today. Still, they are also involved in significant risks that sometimes result in total loss of assets.
The study of risk tolerance in cryptographic investments allows us to define our ability to overcome any unforeseen event when there is a drop in the values of digital currencies, causing losses.
Cryptography is very broad and has much vulnerability, among them the constant and demarcated variability of the values of its coins; due to this, many investors are integrating little by little to experiment without going through significant losses.