How can I tell my investment risk tolerance?

Personal Finance February 26, 2013 Print Friendly and PDF

Risk—and how well you handle it—should help determine your investment decisions. For a personalized risk tolerance score, visit the Rutgers Cooperative Extension "Investment Risk Tolerance Quiz" Web site at: http://njaes.rutgers.edu/money/riskquiz/.

Below are three categories of investors and some characteristics that describe them:

Conservative Investor

• I want my money safe at all times, and I don’t want to lose any of it.

• Any decline in the value of an investment that I own concerns me.

• I’m uncomfortable with price volatility (i.e., changes in investment share prices).

• I want to minimize losses and fluctuation in the value of my investments.

• I like to invest in something safe that offers a fixed rate of return.

• I’m willing to give up higher rates of return in order to keep most of my principal intact. •

I prefer investments that provide regular income without much exposure to principal loss.

Moderate Investor

• I want my investment return to beat inflation by at least 2 percent.

• I select investments that have a moderate amount of volatility, yet offer the opportunity for rates of return higher than certificates of deposit or government bonds.

• Although a decline in the value of my investments concerns me, I can accept temporary market volatility in return for growth opportunities.

• I would like to increase the value of my investments moderately with limited exposure to risk, and I am willing to ride out market downturns.

• I want a balanced investment mix and am willing to put up with some short-term fluctuation in value.

Aggressive Investor

• I like substantial appreciation opportunities, even though it puts my capital at high risk.

• Temporary market fluctuations do not concern me because maximum appreciation is my primary long-term goal.

• I expect a return greater than the S&P 500 from my investments.

• I am financially able to accept some limited liquidity in my investment portfolio.

• I take calculated risks in order to ensure a potential for the highest return over time.

• I have the conviction necessary to hold on to my investment during those years when it could drop in value by 25 percent or more

We would like your feedback on this Personal Finance Frequently Asked Question.

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.