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 may be used to help assess your asset allocation. The following questionnaire may help determine your risk tolerance.
Attitudes toward Risk
1. What is your age?
A) 35 years or under
B) 36-54
C) 55 or above
ABC2. What do you expect to be your next major expenditure?
A) Buying a house
B) Paying for a college education
C) Capitalizing a new business
D) Providing for retirement
ABCD3. When do you expect to use most of the money you are now accumulating in your investments?
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
ABCD4. Over the next several years, you expect your annual income to:
A) Stay about the same
B) Grow moderately
C) Grow substantially
D) Decrease moderately
E) Decrease substantially
ABCDE5. Due to a general market correction, one of your investments loses 14% of its value a short time after you buy it. What do you do?
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
ABC6. Which of these investing plans would you choose for your investment dollars?
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
ABC7. Assuming you are investing in a stock, which one do you choose?
A) Companies that may make significant technological advances that are still selling at their low initial offering price
B) Established, well-known companies that have a potential for continued growth
C) ‘Blue chip’ stocks that pay dividends
ABC8. Assuming you are investing in only one bond, which bond do you choose?
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
ABC9. You expect inflation to return and it has been suggested that you invest in ‘hard’ assets, which have historically outpaced inflation. Your only financial assets are long-term bonds. What do you do?
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
ABCD10. You have just reached the $10,000 plateau on a TV game show. Now you must choose between quitting with the $10,000 in hand or betting the entire $10,000 in one of three alternative scenarios. Which do you choose?
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
ABCDCalculate
Bank savings accounts and CDs are FDIC insured up to $250,000 per depositor per institution and generally provide a fixed rate of return. If you withdrawal your money early, you may be subject to penalties. Stocks, bonds, mutual funds, and variable annuity subaccounts will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their purchase price. The guarantees of an insurance company are dependent on the issuing company’s claims-paying ability. Asset allocation and dollar cost averaging are approaches to help manage investment risk. Asset allocation and dollar cost averaging do not guarantee against investment loss.
This is a hypothetical example used for illustrative purposes only. It is not intended to provide specific advice regarding risk tolerance. Contact a financial professional for more information regarding a risk-tolerance assessment.
