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 # 3
1. What is your main concern when choosing an investment?
The potential for losses. - 0 pts
Mostly the potential for losses, but also gains. - 4 pts
An equal concern for losses and gains. - 6 pts
Mostly gain potential, but also losses. - 10 pts
Only the potential for gains. - 14 pts
2. All your investments lose money this year, are you inclined to sell and move to cash?
Yes. - 0 pts
No. - 11 pts
3. Which investments have you owned?
Savings and checking accounts: CDs & money market funds. - 0 pts
Individual bonds, bond mutual funds. - 3 pts
Individual stock, stock mutual funds. - 5 pts
Speculative Real estate, options, precious metals, commodities, limited partnerships. - 6 pts
4. Would you borrow money to purchase a stock?
Yes. - 10 pts
No. - 0 pts
5. How should your investments perform relative to inflation?
Keep pace with inflation with little chance of investment losses. - 0 pts
Moderately outpace inflation and accept the possibility of moderate short term losses. - 8 pts
Significantly outpace inflation and accept the possibility of greater short term losses. - 14 pts
6. You have $50,000 to invest for 5 years:
Investment X: Will definitely gain $3000. - 0 pts
Investment Y: 70% chance of gaining $10,000 or more and 30% chance of losing $5000. - 10 pts
7. You own a fund that has historically returned 10% per year (sometimes 25% gains but also losses of 10%). Since buying one year ago, you have lost 10%:
Sell your position. - 0 pts
Sell half and hold the rest. - 4 pts
Hold. - 10 pts
Buy more. - 14 pts
8. Last year you invested $20,000 in a moderately risky fund. The market did poorly and your investment is worth $16,000. Had you chosen a Conservative investment, you'd have $21,000 today:
Sell and purchase a much safer investment. - 0 pts
Hold your investment. - 6 pts
Switch to a different moderately risky fund to recoup your losses. 8 pts
Buy more shares of the fund at the lower price. 13 pts
0 - 39 points you have a Conservative risk profile
40 - 74 points you have a Balanced risk profile
over 75 points you have an Aggressive risk profile.