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 # 2
1. Avoiding Bear market losses is accomplished by:
Defensive stop losses that avoid large losses. - 3 pts
Offensive investing during Bull market. - 6 pts
2. Which prize would you choose?
$1000 cash - 2 pt
Risk the $1000, with a 50% chance of winning $5,000 - 4 pts
Risk the $1000, with a 2% chance of winning $100,000 - 2 pt
3. Most of your (emergency) savings is:
In cash or savings account. - 2 pt
Invested returning a higher return than a savings account. - 6 pts
In a money market fund. -2 pt
4. In case of an emergency, you have savings for:
Less than 3 months' living expenses - 2 pt
3-12 months' living expenses - 4pts
More than 12 months' living expenses - 2 pt
5. You have just inherited $100,000. You will probably put the money in:
U.S. Government bonds. - 4 pts
Stocks or a Mutual fund. - 6 pts
A bank CD. - 2 pt
6. Which career promotion would you choose: greater job security with a small raise or a large raise but less job security?
Greater job security - 6 pts
Large pay raise - 2 pt
Not sure - 4pts
7. Where in the stock market, are you most likely to invest?
A Large, well-known company with predictable returns. - 4 pts
A Small, up and coming, growth company with the possibility of doubling in value. - 6 pts
The stock market is just "too risky" to invest. - 2 pt
8. If you were confident an investment would double in a short period of time, would you borrow money to buy it?
Yes - 6 pts
Maybe - 4 pts
No - 2 pt
9. Six months after purchasing an investment, its value appreciates 25%, you:
Sell the investment, pocketing the profit. - 2 pt
Hold the investment, hoping for more appreciation. - 4 pts
Buy more thinking that this is only the beginning. - 2 pt
10. If taking greater risk may improve your investment returns are you:
Willing to take more risk with all your money - 6 pts
Willing to take some risk with some of you money -4 pts
Unwilling to take much more risk - 2 pt
11. You pass a sale at your favorite store, payday is a few more days away and you are on a budget:
Decide to come back after payday. - 4 pts
Avoid the store so as not to be tempted to make a purchase. - 2 pt
You go in understanding you can charge a great bargain if you see one.- 2 pt
0 - 32 points you have a Conservative risk profile
33 - 49 points you have a Balanced risk profile
over 50 points you have an Aggressive risk profile.