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What Is My Risk Tolerance?

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What Is My Risk Tolerance?

On your way home from work, do you drive in the slow lane or the fast lane? Each person has a different propensity for risk. When investing, this risk propensity can be used to determine the percentage of your portfolio that is exposed to equities. Complete the following questionnaire to help determine your risk profile.

Attitudes toward Risk

  1. A) 35 years or under
    B) 36-54
    C) 55 or above

  2. A) Buying a house
    B) Paying for a college education
    C) Capitalizing a new business
    D) Providing for retirement

  3. A) At any time now...so a high level of liquidity is important
    B) Probably in the future...2-5 years from now
    C) In 6-10 years
    D) Probably in 11-20 or more years from now

  4. A) Stay about the same
    B) Grow moderately
    C) Grow substantially
    D) Decrease moderately
    E) Decrease substantially

  5. A) Sell the investment so you will not have to worry if it continues to decline
    B) Hold on to it and wait for it to climb back up
    C) Buy more of the same investment...because at the current lower price, it looks even better than when you bought it

  6. A) You would go for maximum diversity, dividing your portfolio among all available investments, including those ranging from highest return/greatest risk to lowest return/lowest risk
    B) You are concerned about too much diversification, so you would divide your portfolio among two investments with historically high rates of return and moderate risk
    C) You would put your investment dollars in the investment with the highest rate of return and most risk

  7. A) A fund of companies that may make significant technological advances that are still selling at their low initial offering price
    B) A fund that only invests in established, well-known companies that have a potential for continued growth
    C) A fund devoted to highly diversified 'blue chip' stocks that pay dividends

  8. A) A high-yield (junk) bond that pays a higher interest rate than the other two bonds, but also gives you the least sense of security with regard to a possible default
    B) The bond of a well-established company that pays a rate of interest somewhere between the other two bonds
    C) A tax-free bond, since minimizing taxes is your primary investment objective

  9. A) Ignore the advice and hold on to the bonds
    B) Sell the bonds, putting half the proceeds in 'hard' assets and the other half in money market funds
    C) Sell the bonds and put all the proceeds in 'hard' assets
    D) Sell the bonds, put the proceeds in 'hard' assets, and borrow additional money so you can buy even more 'hard' assets

  10. A) The $10,000 -- you take the money and run
    B) A 50 percent chance of winning $50,000
    C) A 20 percent chance of winning $75,000
    D) A 5 percent chance of winning $100,000

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