However, let’s face reality – estimating risks sounds as exciting as doing homework in math during weekends. Nevertheless, if you don’t want to lose your lunch money, pay attention. At the moment you aren’t the next Steve Jobs, Amazon, nor Microsoft, so don’t act as if you were. This is a “do not be an idiot” guide for your first dollar.
The first thing you need to figure out is time horizon. Time horizon is simply a fancy name for the period of time by which you’ll have to use your money. Do you plan to buy pizzas for your dorm next month or you plan to buy a house in 30 years? Then your risk tolerance is basically nonexistent.
Take a look at your emotional stability. Would you fall asleep calmly without feeling stressed knowing that you lost 20 percent of the investment? If yes, then go for risky investments like stocks. However, if no, then invest in something more calming like bonds.
Finally, think of your alternative plan. Do you have a job or do you live on instant noodles? If you have a job, then it means that you can take some losses here. But if you cannot afford to eat anything else, then you better leave your money in your pocket.