Your Investment Profile and
the Risk Tolerance Quiz
To get an idea of your investment profile, start by calculating your investment horizon.
Investment horizon is the period of time, in years, that you wish to remain invested. Investment horizon may be measured as the point in time when you begin taking distributions, or it may be measured as the point in time when you expect to complete taking distributions.
This is the number of years that you can invest. Your investment horizon depends on your financial goal.
A financial goal is a goal that involves saving and investing to reach a specific amount by a specific date.
For example, a financial goal may be to save 20,000 for a college education fund for a child in 14 years, or it may be to save 600,000 for a retirement fund in 20 years.
You can achieve your financial goals through a combination of saving more, saving longer or earning a higher rate of return.
Your goal may be to save for college, retirement, or a down payment on a home. Each goal has its own investment horizon.
For example, saving for retirement at age 65 when you're 20 gives you an investment horizon of 45 years. The longer the investment horizon, the longer you can save and benefit from compounding.
Next, estimate your risk tolerance.
Your risk tolerance is your willingness to accept some volatility in the rate of return of your investments in exchange for a chance to earn a higher return.
If you expect a higher rate of return, you should be willing to accept a higher degree of risk. This is called the risk-return trade-off.
A basic investing principle that says the higher the potential rate of return, the higher the investment risk. Academic and industry studies support this relationship.
For example, stocks historically offer a higher rate of return than bonds. They also have a higher degree of investment risk. Investment risk is measured by the volatility of investment returns.
To get an idea of your risk tolerance, take a few minutes to complete the following risk tolerance quiz:
|1. I plan on using the money I am investing:
||Within 6 months.
||Within the next 3 years.
||Between 3 and 6 years.
||No sooner than 7 years from now.
|2. My investments make up this share of assets (excluding home):
||More than 75%.
||50% or more but less than 75%.
||25% or more but less than 50%.
||Less than 25%.
|3. I expect my future income to:
||Remain the same or grow slowly.
||Grow faster than the rate of inflation.
|4. I have emergency savings:
||Yes, but less than I'd like to have.
|5. I would risk this share in exchange for the same probability of doubling my money:
|6. I have invested in stocks and stock mutual funds:
||Yes, but I was uneasy about it.
||No, but I look forward to it.
||Yes, and I was comfortable with it.
|7. My most important investment goal is to:
||Preserve my original investment.
||Receive some growth and provide income.
||Grow faster than inflation but still provide some income.
||Grow as fast as possible. Income is not important today.
To get your own profile add the number of points for all seven questions:
Continue to the Next Page to See Your Profile