 |
|
Your investment profile
To get an idea of your investment profile, start by calculating your investment horizon. This is the number of years that you can invest. Your investment horizon depends on your financial goal. 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 60 when you're 25 gives you an investment horizon of 35 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.
To get an idea of your risk tolerance, take a few minutes to complete the following risk tolerance quiz:
|
Question
|
1 Point
|
2 Points
|
3 Points
|
4 Points
|
| 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. |
| 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%. |
| I expect my future income to: |
Decrease. |
Remain the same or grow slowly. |
Grow faster than the rate of inflation. |
Grow quickly. |
| I have emergency savings: |
No. |
-- |
Yes, but less than I'd like to have. |
Yes. |
| I would risk this share in exchange for the same probability of doubling my money: |
Zero. |
50%. |
25%. |
10%. |
| 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. |
| 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. |
|
 |
Source: Securities Industry Association.
Add the number of points for all seven questions. Add one point if you choose the first answer, two if you choose the second answer, and so on. If you score between 25 and 28 points, consider yourself an aggressive investor.
If you score between 20 and 24 points, your risk tolerance is above average. If you score between 15 and 19 points, consider yourself a moderate investor. This means you are willing to accept some risk in exchange for a potential higher rate of return.
If you score fewer than 15 points, consider yourself a conservative investor. If you have fewer than 10 points, you may consider yourself a very conservative investor.
This is one example of a short quiz used by financial institutions to help you estimate your risk tolerance. For specific investment advice, you should consult a financial adviser.
Next Topic: Rule of 72
|
|
|
