When it comes to finances some are more risk-averse than others. How risk-averse are you? Do you tend to be a more conservative investor, or do you go all-in for a higher return on your money? Figuring out your investment risk tolerance can help you determine what kind of investor you are. It can also help you figure out if you need to learn more about investing!
Please be aware that while this quiz is not scientific, it is meant to give you a broader understanding of your investment risk tolerance.
What does it mean to be risk-averse? Risk-averse definition
When it comes to being risk-averse you are reluctant to take risks, and you prefer conservative investments over risky investment options. Although this may mean a lower return on your money, you minimalize potential losses. You may not be earning as much money, but you aren't risking as much money either. Low-risk investments include certain bonds, high-yield savings accounts, and certificates of deposits. These types of investments may not pay as much, but you will most likely retain your money in addition to earning interest.
What is your investment risk tolerance?
Curious to find out what type of investor you are? Here are 7 questions to help you determine your investment risk tolerance. Let's get into it!
1. When it comes to the stock market, what do you feel is your level of expertise?
A. What’s the stock market?
B. I’m just starting to learn
C. I have some knowledge
D. I'm an expert!
2. When investing, I am primarily concerned about:
A. Not losing money
B. Keeping what money I have and making some more
C. Relatively consistent growth over time
D. Making as much money as possible from the investments I have chosen
3. Back in 2008, the market took a major decline and stocks lost nearly 30% of their value. If you had owned stocks at that time, how would you have reacted? Or if you DID own stocks at the time, how did you react?
A. I sold or would have sold all of my stocks! I would rather lose money than risk losing any more!
B. I sold or would have sold some of my stocks just to be safe and ensure that not ALL of my money would be lost.
C. I did or would have done nothing and just let everything recover on its own.
D. I bought or would have bought more of the stocks that I had – after all, we should all be buying low, selling high!
4. Your current age is:
A. Over 50
B. Between 35 and 49
C. Between 25 and 34
D. Under 25
5. Of the following investments, which of the following scenarios would you be most comfortable with:
A. The average return of 4%, the worst return of -2%, and best return of 9%
B. The average return of 6%, the worst return of -7%, and best return of 13%
C. The average return of 8%, the worst return of -15%, and best return of 26%
D. The average return of 12%, the worst return of -31%, and best return of 48%
6. What is your primary goal of investing?
A. To generate some extra income, but I need to have a lot of cash on hand now.
B. Going back to school, I’m looking to have consistent money generated over the course of a few years.
C. Purchasing a house or other large, one-time purchase (i.e., car, vacation, etc.)
D. Retirement; I’m going to need to use the money for a long time, over many years, so I can afford to take some market hits.
7. When do you expect that you will need to access your money?
A. In less than 1 year
B. In less than 5 years
C. In 5 to 10 years
D. In 11 or more years
NOW add up your points with...
- 4 points for every A answer
- 3 points for every B answer
- 2 points for every C answer
- 1 point for every D answer
21-28 Points: You are an extra cautious (or extra risk-averse) investor
There is nothing wrong with being careful, but sometimes being too careful is a bit boring. A careful investor wants to gain returns but wants to preserve capital at the same time.
Often these investors become risky when they get nervous after seeing dips in the stock market, either because they are afraid to lose money or that they need to access funds soon (less than 5 years) because they are retiring, making a big purchase, or starting a business. Take a close look at your timeline and see if being risk-averse is really worth your while at this time.
15-20 Points: You are a cautious (or risk-averse) investor
Cautious investors are most common, but they can always afford to take on a little more risk when it comes to investing. You can rest easy when there are dips in the stock market because you know that you won’t need to access your money for quite some time.
When it comes to retirement, you are likely within 10-15 years of retirement, so you are not too opposed to risk just yet. However, if you are under 50 and you consider yourself risk-averse, you should reconsider your priorities and consider upping the ante.
8-13 Points: You are an assertive investor
Assertive investors are wise in that they know and understand risk and the ways it can be used to grow your money. Stock market dips do not generally make you nervous; in fact, you get excited because this is a good opportunity to add risk for the long-term.
You should not need to access retirement money for at least 20 years, so you should feel pretty comfortable with an elevated risk level.
1-7 Points: You are an aggressive investor
Just because you’re an aggressive investor does not mean you’re a crazy investor. You’re still willing to take on large but still sensible risks in order to maximize long-term gains. Generally, you don’t need to access your retirement money for 30-40 years still, so you can afford to buy riskier stocks, either in the form of tech IPOs or drug companies looking to expand.
You can be a successful investor
How did you do? Are you more risk-averse than you thought? Maybe you need advice on how to get over your fear of investing in the stock market. Are you wondering if now is a good time to invest? Learning how to diversify your portfolio and become a better investor can give you a lucrative financial future. You can create long-term wealth for your future self by enrolling in our FREE investing courses!