Every individual has his own threshold levels beyond which he can not take any more risks. Any responsible and reputed stock broker or finance planner will help you in realizing this threshold level unless he has already been able to assess it with his professional expertise. After gauging your level of risk tolerance, they should work in conjunction with you regarding all future investments, where you can stay within comfortable limits of your risk-bearing ability.

There are a few things you need to bear in mind before you can assess your independent risk-taking ability. For instance, things like how much money you can invest, what types of investments you want to get into and what your ultimate financial goals are.

For instance, imagine a situation where you have only ten years to retire and you do not have much money saved up. Here you have to be really cautious with your investments and do some very high-risk planning to reach your financial goals. This is because your steady source of income from your job may cease from the day you retire.

On the other hand, if age is on your side, and that is if you are in your early twenties, and wish to start in investing in stocks to make adequate money for retirement, your risk tolerance is low. This means you are at an age, when you are capable of taking high risks, as time is in your hands and can watch your investments grow with time.

Remember one crucial thing about your risk taking ability. Whether you have high or low risk tolerance, it has nothing to do with what your thoughts are on ‘risk’ as a concept. There are a lot of factors which are involved in determining a person’s risk tolerability.

Suppose you have invested in stocks and are watching the stock movements daily and very keenly and see the stock values drop slightly. What would be your immediate reaction?

If you have a very low risk tolerance you would jump and sell your stocks fearing it might drop further and you are going to lose all your money. If you were a high risk taker, you would wait and watch and let the money ride and takes its own time to grow again.

A good and trusted stock broker would take into account your risk tolerance levels and advise you accordingly - which stocks to invest in and which not to, depending on much you can tolerate the turbulence of the stock market.

Risk tolerance is determined by what your financial goals are: how much money you wish to make and within what time frame. Another factor is how you feel about losing money. Sometimes you might have to lose lots of money. These factors are all inter-related in determining a risk tolerance level of an individual.

Do you know what a bond is?

A bond can be defined as an organization’s IOU; which basically means a promissory note issued that offers to pay you later at a certain fixed rate of interest over a definite period of time. Issuing of bonds is thus a debt collecting measure. Other similar debt collecting instruments are notes and debentures. The maximum numbers of bonds issued today have a fixed rate of interest though variable rate bonds are also coming in vogue.

Corporations issue bonds in order to raise a large sum of money quickly. The money raised may be used for diverse activities like building new offices, purchasing latest equipment etc. Government bonds may be issued when the government needs money for constructing roads, schools, hospitals, etc. for building the infrastructure of the country.

What exactly is a municipal bond?

In the United States, a city or local government issues bonds from time to time and this is known as A Municipal Bond (or muni). In the U.S Municipal Bonds can be issued by cities, counties, school districts, redevelopment agencies, and publicly owned airports, as well as seaports and all other government bodies below the state level.

These bonds are guaranteed by either the local government or a subdivision of the local government or a group of local government. These Municipal Bonds are appraised for risks and are rated accordingly.

Most of the times the income generated by the Municipal Bond by a bondholder is non-taxable. The income generated from Municipal Bond is exempt from Federal Income Tax and State Income tax in the state that issues them. But there are other bonds that may be taxable.

However one has to keep in mind the fact that bonds issued by cities, states, and other local agencies of the government are not as reliable as corporate bonds. Whereas some Municipal bonds that are issued are supported by the taxing authority of the town or the state as the case may be others are supported the earning income to pay the interest as well as the principal. However since Municipal Bonds are not taxable by the federal government they have to pay very little interest compared to corporate bonds.

People find investing in Municipal bonds (also known as “munis”) remunerative because the income is exempt from federal income tax and sometimes also from state and local taxes. Apart from this, you also have the satisfaction of knowing that you are contributing to building the infrastructure of your state and city, which includes funds for welfare of the general mass in building hospitals, schools, highways and other public undertakings.

Two kinds of Municipal Bonds

Generally, Municipal Bonds are of two kinds: general obligation bonds and revenue bonds. The first kind, i.e., General obligation bonds, is issued to cover immediate expenses and are backed by the taxing power of the person issuing it. The second kind of bond that is, Revenue bonds are issued to generate income for future projects for building infrastructure. Both kinds of Municipal Bonds are exempt from state and federal taxes. This makes them attractive to investors who are prone to avoiding high-risk ventures.

Now there are a range of futures contracts available on different commodities for trading ranging from agricultural commodities to financial commodities. All these products are not suitable for all traders, especially beginners. Novice traders, especially those do not have no previous experience of trading any financial instruments should concentrate on only one or two commodities which most suit their style of trading and risk tolerance.

Any commodity future contract that a beginner trader trade must satisfy at least two requirements; first the market must be liquid with high trading volume and activity, second the market should be trendy so that the novice trader can practice his/her trading strategies effectively.

Traders willing to risk their money in futures market should thoroughly aware of the products that they are going to trade. They should also be sure about different fundamental and technical market analysis tools, and various risk minimizing tactics. They should have done demo (practice/paper) trading to get familiar with the market. If all these requirements are fulfilled you can select from the below list of commodities futures which are liquid and trendy.

1. Futures on Currencies: All currency futures on G7 currencies are liquid, but futures on currencies like Swiss Franc (CHF), Japanese Yen (JPY) and British Pound (GBP) are liquid and very trendy.

2. Futures on Energy Commodities: All three most popular energy futures, crude oil, natural gas and heating oil are good instruments for trading. But many of these futures are large sized ones and are not suitable for small-budget traders. International issues and economic changes are major profit deciding factor.

3. Futures on Food commodities: Coffee, Sugar and Orange are good for trading. But food commodities usually have less trading volume and liquidity compared to others.

4. Futures on Agricultural commodities: Cotton, Corn, Oats and Soybeans are good. Seasonal climate changes and local issues of production area are major profit deciding factors.

5. Futures on Metal commodities: There are a range of products available, of that gold, silver and copper are better suited for novice traders.

6. Futures on Financial instruments: T-bonds are suitable for short-term traders and Eurodollars are suitable for long-term traders.

Remember, the liquidity, trendiness and profitability of all trading instruments change with time. More over there are many other things to be considered before making any trading decision, which involve risk tolerance, attaining diversity, position sizing, short-term or long-term profit goals, trading software, fees involved, brokerage firm and the market you are trading.

Mini futures contracts are available on most (all) above instruments, which offer greater flexibility and lesser account requirements, and are thus most suitable for beginner traders.

There are basically two types of stocks, preferred and common. Preferred stocks, and just as the name implies, these stocks are paid dividends before common stocks are paid, and should a company fail they are entitled to the company’s assets before common stock holders. Common stocks on the other hand are at the bottom of the pile for dividends and assets, so common stocks are not as good as preferred and preferred are not as good as bonds in regards to payment of assets should a company fail. When you hear people referring to buying stocks, they are usually referring to common stocks, which is the type of stocks that most investors purchase. As with all investments, risk and profit are counter balanced, that is to say preferred stocks are safer than common stock as they have a better probability of being able to recover value from asset forfeiture, than do common stocks. While common stocks are on the bottom of the pile and have to divide up the remains of assets if any. In stocks the higher the risk, the greater the return.

There are five kinds of stocks that you will consider based on your investment goals;

GROWTH STOCKS: Just as the name implies, these are stocks main objective is growth over time. A majority of small investors will invest in these stocks as they are one of the safest as the risk involved is small. These stocks usually perform well over a long period of time and may actually out perform the economy and the stock market itself.

INCOME STOCKS: These stocks will have a high rate of return, normally due to the fact that the company distributes a large portion of its income to shareholders in the form of dividends. However, since these stocks are based on a company’s profits can be affected by economic down turns that affect that company’s niche in the economic sector. I view these stocks as a little riskier than growth stocks but still safer than the more aggressive types of stocks that will be discussed later.

BLUE CHIP STOCKS: They received their names from gambling, as the blue chips use to be the highest value chip. In the case of stocks it refers to companies that are the leaders in their industry or market sector. They are large companies that have been around for a longtime, have a proven track record, and are stable. These stocks generally are priced at the highest end of the cost spectrum for stocks and their stock prices do not normally have wide swings in its price. These stocks are reliable and usually pay dividends on a regular bases. However, in the current stock market we have seen these prices drop significantly, which is very rare, and possibly a good time to buy. Do not buy solely on the drop in price. You need to do some foot work and make sure that the company is still sound and will be able to resume its place in the market. Blue chip stocks are generally found in retirement portfolios and do well over time.

VALUE STOCKS: These stocks are ones that are under priced based on the company’s earnings. These types of stocks carry with them a high degree of risk. Many investors buy these stocks solely on the belief that the company will perform better in the future. The more speculative a stock is the higher the risk. Information on the company, their product, their economic niche and their management can reduce the risk.

RECURRING STOCKS: These stocks generally follow the up and down swings in the economy, and generally do well in a growing economy. However, you must stay on top of information relating to the economy so you can make a well informed decision regarding these stocks.

Now you must sit down and decide what your investment objectives are, long term slow growth, income generating, long term safe growth with very limited risk, or high risk/high immediate returns. Normally all stock portfolios carry all five of these types of stocks. The percentage of anyone type of stock will show the overwhelming performance objective of the investor.

As with all investments you must always ask the most important question. Am I willing to lose my money, can I afford to lose it? Remember, stock investors are risk takers. They attempt to mitigate the risk as much as possible and do this thru research, judgment and common sense.

As a new investor you have already determined the amount of money you can lose. You have set down and made a calculated decision of your goals and expectations. Now what? Assuming that you are going to do this yourself, as opposed to hiring a broker, in one word research. Since your reading this on the computer you may begin on the Internet, or you can do it the old fashion way, going to the library, researching by using old newspaper listings of stocks and doing a graph of that stock over the last several years or the last six months and then continue this process several months into the future. My guess is you will use the Internet, is easier and faster. There are a lot of different tools that you will be confronted with, deciding which ones you want and need will be enough to drive the common person to inaction. Initially you want to view past performance of the stocks you are interested in. Order a prospectus from the company and review it carefully, checking out its balance sheet and its management. Next you will follow the stock, anywhere from several weeks to several months, depending on your level of comfort, and put it on a graph so you can visually see the stock’s performance. Until you become confident on your new ability and skills in researching and investing it is highly recommended that you begin with cheap stocks and invest moderately. Remember, your goal at this point is learning, not making money, but not losing it either. Monitor your result’s, find out what you did right and more importantly what you did wrong or what you failed to do. As you continue you will find that you are looking for more and more information and informational tools that you can utilize to conduct your research faster and more accurately, and don’t forget to keep up to date on current events as these could affect your stocks and stock decisions.

Most people will give up and go to a broker or a mutual fund, they either don’t want to spend the time and effort needed to do the research, or they have no confidence in themselves or their abilities. Those that I have talked with, that have succeeded in investing. Made a lot of mistakes and lost money at first. They continued to educate themselves, continued doing research, and continued learning and growing in their abilities. They all had a goal and had set up a system for their research and investing, and followed it every time. Most continued doing investing as a hobby, and did well for themselves. Several enjoyed it so much and learned to do it well enough to actually use it as a second job and made good money year in and year out.

THE CURRENT MARKET: With the current stock market drops and government intervention there have been a lot of losers and there have been winners. I don’t have a crystal ball and can’t see into the future, but I can research the past of the market in general,and specific companies’ and stocks in particular, and make a reasonable assumption. A general rule that I have always heard was, do the opposite of what everyone else is doing. This saying came about due to people and companies reacting out of emotion, usually fear and not on research. It’s like poker, every hand is a loser and every hand is a winner, it depends on how you play it.

As the current stock market has shown us, you can not always count on the markets going up, and going down. If you watch the market you are aware of the large mutual funds. They seem to always do good, why? A lot of them use expensive computer systems with automatic sale and buy features to monitor their accounts. The small investor, doesn’t have that, until now. Even with limited computer know how, little or no experience in the stock market you can be successful.