What is Your Risk Tolerance?
March 5th, 2008 at 08:03am Amy Barrett
 Amy L. Barrett, MBA, CFA, CFP®, CDFA™
Once your investment goals are set, then you can select the stock-to-bond allocation.  Your selection of the percentage of stock in your portfolio is your most important investment decision. The higher percentage of stocks produces a higher level of return and risk. How can you know that a stock-to-bond ratio is too high or too low for you?  What is your investment risk tolerance?Â
Although the process requires serious consideration, we have a tool to help. Â Keep in mind that the Risk Tolerance Quiz that follows is only an estimate of your risk tolerance. Â A skilled financial advisor can provide more guidance. Â Read the questions below and circle the best answer that best represents your situation. Â The column with the most circles is your likely risk tolerance. Â Keep in mind that some people have legal, moral, location, or tax issues that affect their risk tolerance. Â
After taking the Risk Tolerance Questionnaire, find the column with the most circles. If most of the circles are in column (1), your portfolio should be conservative with a stock-to-bond ratio of 40% stocks and 60% bonds or 50% stocks and 50% bonds.  If you chose column (2), the optimal ratio could be 60% stocks and 40% bonds or 70% stocks and 30% bonds. Column (3) would lead to an 80% stocks and 20% bonds or 90% stocks and 10% bonds portfolio. If you select the furthermost right column (4), you should be comfortable with a stock-to-bond ratio of 100% stocks and 0% bonds. Risk Tolerance Questionnaire - Find Your Investing Comfort Level
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Answer the questions below by circling the number to the right. |
Least Like Your Situation | Somewhat Close to Your Situation | Close to Your Situation | Closest to Your Situation |
| You are comfortable with your understanding of investments. | 1 | 2 | 3 | 4 |
| You are healthy. | 1 | 2 | 3 | 4 |
| Your family has longevity. | 1 | 2 | 3 | 4 |
| Your dependents do not have health issues. | 1 | 2 | 3 | 4 |
| You have few dependents. | 1 | 2 | 3 | 4 |
| Your current employment and investment income provide a steady and sufficient income. | 1 | 2 | 3 | 4 |
| You have other sources of income; future or current (i.e., pension) | 1 | 2 | 3 | 4 |
| You expect a sizable inheritance. | 1 | 2 | 3 | 4 |
| Your net worth is sizable. | 1 | 2 | 3 | 4 |
| Your expenses are less than your income. | 1 | 2 | 3 | 4 |
| You do not expect to have big expenses in the future (e.g. 2nd home.) | 1 | 2 | 3 | 4 |
| You are not drawing assets from your portfolio to fund your retirement. | 1 | 2 | 3 | 4 |
| Your life insurance will cover your family if necessary. | 1 | 2 | 3 | 4 |
| You need your money to grow. | 1 | 2 | 3 | 4 |
| You wish for a higher lifestyle. | 1 | 2 | 3 | 4 |
| You do not lose sleep at night if your investments drop significantly. | 1 | 2 | 3 | 4 |
| Total of Circled Numbers in Each Column | Â | Â | Â | Â |
| Your risk tolerance is the column (1, 2 3 or 4) with the highest count. | (1)Lower level of Stock | (2)Mid-level of Stocks | (3)Mid-to-High Level of Stocks | (4)Higher Level of Stocks |
Amy L. Barrett MBA, CFA, CFP®, CDFA™ is a financial advisor, specializing in investment and divorce planning issues, with Savant Capital Management, Inc., Rockford, IL 815-227-0300
Entry Filed under: Estate Planning, Financial Planning, Investments
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