Investing refers to how you make your money work for you – the ultimate goal of investing is to come away with a profit. In order to invest, you must commit to setting aside money on a regular basis and choosing the investments that suit your needs and goals. The safest investments often generate the lowest returns. For instance, the return you’ll receive from investing your money in a savings account may not even account for inflation over time. More risky investments, including stocks and bonds, carry the potential for higher returns; however, there is always a chance that you will lose some or all of the money you’ve invested. The higher the return you get from your investment, the less you’ll have to invest on a month-to-month basis. In order to understand what kind of investment is right for you, you’ll have to identify your investor profile.

Can You Deal with Risk?

The first question to ask yourself is whether or not you’re comfortable with a high-risk investment. A high-risk investment will most likely help you to profit more from your money; unfortunately, there is the potential of losing part or all of your money. Are you comfortable with the idea of taking on risk, if the result is a greater return? Or, would you collect a lower return with peace of mind that your money isn’t going to disappear?

What Do You Want to Make?

Most people would like to make as much as possible when it comes to returns on investments. However, the amount you can feasibly make will depend on how comfortable you are with risk. Consider your financial goals. How much of a return will you require on your investment in order to meet your objectives? Meeting that goal may mean adjusting the level of risk. Alternatively, you might adjust your goal to make it more realistic.

How Long Will You Invest?

The time horizon on your investment is the amount of time you will need to meet your goals. The investment could be a short-term one, such as a vacation you’d like to take in a couple of months.

Or, it could be a long-term one, such as setting aside money for your retirement in 20-35 years. The amount of time you have to obtain your return might make it easier for you to decide how much risk you’re willing to accept. In general, you’ll probably be more likely to choose an investment that guarantees you money in the short-term. In the long-term, however, you might be more willing to opt for a higher-risk investment.

What if You Need to Access Your Money?

Most of the time, investments do not allow you to simply take back your money without a penalty, such as a fee. Investments that are described as “liquid,” such as bank accounts, are more likely to allow you to take your money back. Not surprisingly, the returns on these kinds of investments are low. Less liquid investments are more likely to have higher returns, but your money will be held for a prearranged period of time.