Your investment objectives must also be considered when calculating how much risk can be assumed. If you are saving for a child's college education or your retirement, how much risk do you really want to take with those funds? Conversely, more risk could be taken if you are using true risk capital or disposable income to attempt to earn extra income.
Interestingly, some people seem quite alright with using retirement funds to trade higher-risk instruments. If you are doing this for the sole purpose of sheltering the trades from tax exposure, make sure you fully understand what you are doing. Such a strategy may be alright if you are experienced, are using only a portion of your IRA funds for this purpose and are not risking your ability to retire on a single trade.
However, if you are applying your entire IRA, have little or no net worth and are just trying to avoid tax exposure for that "sure thing" trade, you need to rethink the notion of taking on this much risk. With this in mind, why would a low net worth individual need to take that much risk with retirement funds? In other words, just because you can do something doesn't always mean you should.
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