Are you a risk taker? How do you answer that question? You may associate that question with another one inviting you to go sky-diving. But what about with your money? Are you a risk-taker when it comes to your hard-earned cash?

Your goals, your personality, and your relationship with money will all determine how much you are willing to risk, and how much risk you're willing to take on.

Not all risks are created equal. Generally, if there is a greater risk, there is a greater potential for reward. Notice there is a greater potential for reward; not a guarantee of a reward. And the wisdom goes in the other direction, that there are smaller rewards for smaller risks.

Once you decide what kind of investor you are, what your goals are, and what your comfort level with risk is, then you can decide how much you'll put your money in the way of risk.

We base our perception of risk on our past experiences. The risk we’re willing to take in our personal lives is directly associated with what we know we’ve done in the past and what the outcome of that activity was.

What about with your investments? Maybe you’re new to investing and don’t have any past experience. Is investing such a scary concept that you don't invest at all? If you do that, you may not see the larger risk of losing purchasing power in the future as your money gets eaten up by taxes and inflation. You could be focusing on what is actually a smaller risk and not notice the larger risks.

And when looking at investments, some risks are more obvious than other ones. Be sure to do your homework so that you have calculated risks, so that you can feel more comfortable with the level of risk. Becoming more educated about your investments and investment options will make you not only a better consumer, but also will mitigate your risks by preparing for what's ahead. Education about the real risks can conquer fear and ignorance, which in turn will help you make sensible decisions.

We can't eliminate all risk whether in our daily lives or our finances, and really, we wouldn't want to completely eliminate risk. It wouldn't be any fun. There are fun risks such as taking a roller coaster ride, going mountain climbing or hang gliding. But let's keep the risks that are just for fun at the county fair and out of the portfolio.

With investments, you can minimize risks and you can choose which risks you're willing to take. The best risks to take are ones that you understand and ones that will have potentially great payoffs. The worst risks are the ones that you know make no sense for you, but you do it anyway.

Can you afford to take a risk? That depends on your situation and how much we’re talking about. If you can't afford the time to wait for the market to come back from a dip, then it's not a smart risk for you. But, if you have time to wait, then the risk of the investment is lower.

As we said, there is no right or wrong related to risk, just what works for you. Your financial professional will want to talk to you about risk and how you feel about it as you structure an investment plan that works for you.