SUITABILITY - Tests
Not all clients are the same.
Clients fall into risk profiles.
Each client's propensity for risk differs.
Moreover clients generally have different risk profiles for different activities.
Investment portfolios are measured by volatility, the higher the volatility the riskier the portfolio is to losses.
Below is a Risk Profile Test which will help you decide if you are an Aggressive, Balanced or Conservative investor.
- Test # 1
1. Do you have 3 to 6 months of savings for emergencies?
Yes - 5 pts
No - 0 pt
2. Which investments have you owned (add up total)?
Bonds / Bond funds - 1 pt
Real Estate investments - 1 pt
U.S. stocks / Stock Mutual funds - 1 pt
International stocks / International Mutual funds - 1 pt
Options and/or Futures - 2 pts
Managed futures and/or Commodity funds - 2 pts
Hedge funds - 2 pts
Managed accounts - 1 pts
3. What average annual rate of return of do you expect?
4% or less - 0 pts
4% to 7% annually - 2 pts
7% to 15% annually - 5 pts
15% or more annually - 7 pts
4. What percentage of your total net worth is invested?
Less than 15% - 5 pts
15% to 30% - 4 pts
30% to 50% - 3 pts
50% to 75% - 2 pts
More than 75% - 1 pt
5. What type of Investor are you?
Buy and hold investor. - 5 pts
Market timer investing in Bull markets. - 3 pts
Market timer avoiding Bear markets. - 1 pt
6. Which age group do you fall into?
under 30 - 6 pts
30 to 44 - 5 pts
45 to 60 - 4 pts
60 to 74 - 2 pts
75 and up - 1 pt
7. What is your primary source of income?
Salary and other earnings from work - 5 pts
Earnings from my investment portfolio - 3 pts
Retirement pension and/or Social Security - 1 pt
8. Part of your Investment portfolio may be liquidated for retirement income, educational and/or medical expenses, the purchase of a house and/or another large purchase.
in less than 2 years - 1 pt
2 to 5 years - 2 pts
5 to 10 years - 3 pts
10 years or more - 5 pts
9. I will need income from these investments now or very soon.
Yes - 1 pt
No - 4 pts
10. Compared to the S&P 500 my investment should:
Outperform the S&P 500 - 5 pts
Approximate the S&P 500 - 3 pts
Underperform the S&P 500 with less risk - 1 pt
11. My attitude of trading activity is:
Portfolio changes are costly and unproductive. - 1 pt
Reallocation is Okay. - 3 pts
Moderate trading is Okay. - 5 pts
12. If the stock market declines 20% your reaction would be:
I should not have invested in Financial market. - 0 pts
I should have sold by now to limit my exposure. - 2 pts
I'm still invested but I am prepared to sell. - 3 pts
I will ride out the Bear market awaiting the next Bull market. - 5 pts
13. The most I am willing to lose in one year is:
Less than 5%. Avoiding loses is very important to me. - 2 pt
5% to 10%. Modest periodic declines are acceptable. - 3 pts
10% to 20%. Short term losses are acceptable if higher risk investments will offer higher returns over the long term. - 5 pts
Over 20%. High returns don't come without taking risk, I can afford a large short term loss. - 7 pts
0 - 20 points you have a Conservative risk profile
21 - 44 points you have a Balanced risk profile
over 45 points you have an Aggressive risk profile.