Risk Tolerance Questionnaire

Transcription

1 Risk Tolerance Questionnaire Date: Name: To help us understand what type of investor you may be, we have developed a self-scoring questionnaire. This grading material can also help you get a better perspective on your own investment attitudes. How does it work? The following questions have been carefully chosen by us. For each question, the more conservative your response the lower the point value. Of course, the decision to invest more conservatively or more aggressively than this questionnaire suggests is always yours to make. What do your answers mean? Complete the questionnaire with the best available answers. Place the number value for each answer in the space provided. When you have answered all of the questions, add up the points and compare that total to the ratings on the last page. This will indicate which investment strategy may be suitable for you to take with your money. The answers will help us to determine the right structure for your portfolio, given the tolerance you express here for investment risk. As a result, it is important that you take your time with these questions and provide us with your honest responses. Section One 1. In approximately how many years do you plan to retire? A. I m retired now 1 B. Within 5 years 2 C. Within 10 years 3 D. Within 20 years 6 E. More than 20 years 7 2. When do you expect to start withdrawing money from your investments (including retirement accounts)? A. Less than 5 years 1 B years 2 C years 4 D years 6 E. More than 20 years 8 3. Do you have an emergency fund? A. No 1 B. Yes, equal to one month or less of our expenses 2 C. Yes, equal to 2 4 months of household expenses 4 D. Yes, equal to more than 4 months of expenses 6

2 4. Which ONE of the following describes your expected earnings over the next five years? A. I expect my earnings to decrease 1 B. I expect them to keep pace with inflation 2 C. I expect them to increase slightly ahead of inflation 4 D. I expect them to increase much faster than inflation 6 5. Approximately what portion of your monthly take-home income goes toward paying off debt (including the mortgage)? A. More than 60% 1 B. Between 40 60% 2 C. Between 25 40% 3 D. Between 10 25% 5 E. Less than 10% 6 6. Have you ever invested in individual bonds or bond mutual funds? A. No, and I would be uncomfortable with the risk 1 B. Yes, but was uncomfortable with the risk 2 C. No, but would be comfortable with the risk 3 D. Yes, and I felt comfortable with the risk 4 7. Have you ever invested in individual stocks or stock mutual funds? A. No, and I would be uncomfortable with the risk 1 B. Yes, but I was uncomfortable with the risk 2 C. No, but I would be comfortable with the risk 3 D. Yes, and I felt comfortable with the risk 4 8. When you buy car insurance, you: A. Choose the lowest deductible to ensure maximum 1 coverage even though the policy costs more B. Choose a moderate deductible to reduce the premium 2 C. Choose a high deductible so as to pay a low premium, 4 even though many losses may not be covered 9. If you could increase your chances of having a more comfortable retirement, would you: A. Be unlikely to take much more risk? 1 B. Be willing to take a little more risk with some of your 2 Money? C. Be willing to take a little more risk with all of your 4 Money? D. Be willing to take a lot more risk with all your money? 6 Sub-total points for this section

3 Section Two 1 The following graph shows the ranges of returns of four different investments over a one-year period. For example, if you invest in portfolio C, your worst case scenario is a loss of $2000, and your best case scenario is a gain of $5200. You ll notice that investments offering higher potential returns generally involve greater volatility and risk. Given that this is the only information that you have on these four portfolios, which one would you choose to invest in? $10,000 1 Year Change in a $10,000 Investment $8,400 $8,000 $6,000 $5,200 $4,000 $2,000 $1,190 $500 $0 - $200 - $2,000 - $700 - $2,000 - $4,000 - $6,000 - $4,500 Por olio Por olio Por olio Por olio A B C D Portfolio A 2 Portfolio B 4 Portfolio C 6 Portfolio D 8

4 2. How do you feel about inflation and its impact on your investments? A. I am satisfied with my investments keeping pace with 1 Point the rate of inflation in order to limit the fluctuations in their values even though it would cause me to sacrifice potential higher returns. B. I prefer to achieve returns that are slightly above the rate of 2 Points inflation. I am willing to assume some fluctuations in my investments in order to achieve returns that are potentially above inflation. C. I prefer that my investments achieve returns much higher 3 Points than the rate of inflation. I would be willing to assume a greater amount of fluctuation in my investment values in order to achieve returns that are potentially much higher than inflation. 3. Suppose that a substantial portion of your assets is invested in a stock mutual fund. The stock market and your stock fund have experienced a near-crash, losing 25% of its value in one month. What action would you take? A. Sell the stock fund. You are afraid that the stock market 1 Point is in a downturn and you cannot afford the decrease in value. B. Sell half of your investment in the fund. You think that 2 Points the market may rebound, but you are not willing to leave all of your investment exposed to further loss. C. Hold the fund. You understand that your investment may 5 Points be subject to short-term price swings and are comfortable weathering the storm. D. Buy more of the fund (with cash you have in savings) to 8 Points take advantage of its low price. You are comfortable with market fluctuations and assume that the fund will regain its previous value or increase in value.

5 4. Again, assume you have a substantial portion of your assets invested in a stock mutual fund. The stock market has been gradually declining at an average of 2% per month. This slow decline is also reflected in your stock mutual fund. Your investment has lost 22% of its value from a year ago. You: A. Sell the fund and realize the 22% loss. You do not believe 1 Point that the fund will regain its value. B. Sell half of your investment in the fund. You are not willing 2 Points to leave all of your investment at risk for further loss. C. Do nothing. You are comfortable waiting for the stock fund 5 Points to regain its previous value or increase in value. D. Invest more now because the stock fund is selling for 8 Points approximately 20% less than it was 12 months ago. You believe that the fund will regain its value or possibly appreciate even higher than its initial value. 5. How do you feel about fluctuations in the value of your portfolio? A. I do not want the possibility of substantial losses in the value 2 Points of my portfolio. I prefer little fluctuation in the value of my portfolio. B. I can tolerate moderate losses in order to achieve potential 4 Points favorable returns. C. I can tolerate the risk of large losses in order to increase the 6 Points potential of achieving high returns. Sub-total points in this section

6 Section Three Please read the following statements. Rank yourself on a scale from 1 to 5 according to how strongly you agree or disagree with each statement. Circle your choice. 1 = strongly disagree 3 = neutral 5 = strongly agree 2 = disagree 4 = agree 1 I would continue to hold my investments if their value declined by 10% I am willing to risk losses to my investments As a rule, I would NOT use CDs or other very safe investments I do NOT consider myself a conservative investor I might be willing to invest a small part of my money in bonds or money market investments, but prefer to keep most or all of my investments in stocks. 6 I prefer using stock funds for my money I prefer using investments that are likely to produce higher returns even though these investments are riskier. 8 Stock funds are better investments for retirement than bonds, money markets or CDs. 9 I choose my investments to seek the highest potential investment return In choosing investments, the growth of my investments is more important to me than risk. Sub-total points from section three Points from section one Points from section two Total points

7 If you have any pertinent additional information please tell us here such as retirement plans, children s educations expenditures, or medical conditions:

8 Scoring Conservative Investor points Moderately Conservative Investor points Moderate Investor points Moderately Aggressive Investor points Aggressive Investor points The conservative range is designed for the cautious investor, one with a low risk tolerance and/or a short time horizon. It is targeted toward the investor seeking investment stability and liquidity from their investable assets. The main objective of the individual in the conservative risk range is to preserve capital while providing income. Fluctuations in the values of portfolios within this range are minor. The moderately conservative risk range is appropriate for the investor who seeks both modest capital appreciation and income from their portfolio. This investor will have either a moderate time horizon or a slightly higher risk tolerance than the most conservative investor in the previous risk range. While this range is stall designed to preserve the investor's capital, fluctuations in the values of portfolios may occur from year to year. This range will best suit the investor who seeks relatively stable growth from their investable assets offset by a low level of income. An investor in the moderate risk range will have a higher tolerance for risk and/or a longer time horizon than either of the previous investors. The main objective of an individual within this range is to achieve steady portfolio growth while limiting fluctuations to less than those of the overall stock markets. The moderately aggressive risk range is designed for investors with a relatively high tolerance for risk and a longer time horizon. These investors have little need for current income and seek above-average growth from their investable assets. The main objective of this risk range is capital appreciation, and its investors should be able to tolerate moderate fluctuations in their portfolio values. This range is appropriate for investors who have both a high tolerance for risk and long investment time horizon. The main objective of the aggressive risk range is to provide high growth for the investor's assets without providing current income. Portfolios in this range may have substantial fluctuations in the value from year to year, making this category unsuitable for those who do not have an extended investment horizon.