Reading more, beyond the bottom line... Do you really know your ability to tolerate risk and volatility?...
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Risk-Taker: Younger, able to endure severe losses, knowing there are many years to recover from those losses. Thinking that there could be high reward to accompany the high risks attached to more volatile investment vehicles.
Risk Averse: Older, and/or more conservative investor, where there is too much to lose, or you simply cannot tolerate the uncertainty and risk involved, following the proverbial question: "Will I be able to sleep at night?"... If a riskier situation causes too much distress in your life, then you need to accept a lower level of risk, and act on investment vehicles that match your more conservative investment goals.
Your Personality Give your personality a quick assessment...
Are you optimistic, without a care in the world. Do you say, "It's only money!" and roll with the punches when you get hit with a loss or defeat in life?...
Or... Are you devastated by downturns in your life, that knock you out of play for too long; that cause you serious mental angst in life.
These are the general, initial looks at your risk tolerance for your given situation.
3 Free "Risk Tolerance" Quizzes: After you think you've figured out your own risk tolerance, take all three of these free tests to evaluate your tolerance for risk.
Rutgers University: Take their quiz here...
Vanguard: Take their quiz here...
MSN Site: Take their quiz here...
Each of these quizzes will give you a general rating and feedback regarding your personal risk tolerance, based on the answers you provided. These are tools to help your overall perspective. They should not be used for your investment decisions, but for general guidance alone. Consult your own financial advisor for expert advice, prior to investing.
Investment Vehicles - Examples by risk type and return potential: Given your conclusions regarding your risk tolerance, you can evaluate the types of investment vehicles to pursue (if any), referring to the table below for examples of popular investment types:
Aggressive growth funds
Emerging markets mutual funds
Foreign company stocks
Global, international, sector, and precious metal mutual funds
Penny stocks
Small cap stocks and funds
Variable annuities invested in aggressive growth sub-accounts
Convertible bonds
High-yield (junk) bond funds
Large-cap stocks and funds
S&P 500 & Wilshire 5000 stock index funds
Variable annuities invested in large-cap stock sub-accounts
Fixed annuities
Government agency securities
High quality short- and intermediate-term municipal and corporate bonds and bond funds
Money market mutual funds
Treasury bills and notes U.S. savings bonds (Series I and EE)
Variable annuities invested in high-quality bond sub-accounts
Certificates of Deposit
Money market deposit accounts
NOW checking accounts
Passbook or statement savings accounts
The next step is one of the most important rules to follow when investing... Don't Buy All At Once...
More about this in Step 420...
Next Step >>
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Additional Resources
