Investors with different appetites for investment risk tolerance are more satisfied with investment portfolio risk exposures that are more in line with their ability to cope with investment financial risk and rewards.
Investors who are more risk-averse are more satisfied with a less risky investment asset allocation – regardless of lower expected investment returns or the related need to save more to achieve their lifetime financial plans. The reverse is true for investors with a greater tolerance for investment risk, since they can stomach greater market price swings without panicking. Historically, investment results for more risk tolerance investors have allowed them to achieve higher returns and to save at lower rates in pursuit of the same financial goals as more risk averse investors.
Nevertheless, all sane investors are risk averse to some degree, and that is what normally keeps current securities market prices down relative to expectations about future securities values. The key question is what kind of investor are you from an investment risk tolerance standpoint? This important answer is a direct driver of the asset allocation percentages of your personal portfolio. Your asset allocation percentages determine the greater or lesser degree of exposure that your personal investment portfolio has to investment risk and the opportunity for higher investment returns.
Trivial financial industry investment risk tolerance questionnaires often use just a couple of leading questions that quickly categorize you along some part of the range from “conservative investor” to “aggressive investor.” Sadly, these simplistic investment risk tolerance questionnaires are just a way for securities industry sales people to push you forward through a well-honed process of selling you overly expensive investment securities products that will drive up their sales commissions and bonuses and the profits of their financial services company employer. However, from the point-of-view of your best interests, it is very important to measure much more carefully your risk tolerance regarding the expected investment risk versus reward composition of your portfolio’s asset allocation percentages.
There is an inexpensive way for you to get a much better assessment of your risk tolerance than you would from a simple conservative versus aggressive financial industry investor questionnaire.
You can complete an investment risk tolerance assessment survey online, and you do not have to work with any financial industry intermediary or financial advisor to do so. Furthermore, by doing this investment risk tolerance analysis yourself, you can separate the process of assessing your investment risk tolerance from the financial industry’s product sales process. By doing so, you can give yourself the alternative of buying very low cost and broadly diversified index fund investments directly from low-cost mutual fund vendors. Industry intermediaries tend to sell only high cost investments that pay them high fees and/or high commissions. Often associated with high pressure securities sales efforts, these higher fees and commissions come out of your pocket and can really damage your long-term finances. You pay more and get less. Click here to learn about: Investment Fees
If you want to do an online survey to assess your personal investment risk tolerance, you can do so at MyRiskTolerance.com, which is a product of Finametrica. Their website explains it all, so I will not repeat their materials here.
Finametrica has a scientific process for the assessment of personal risk preferences. Their survey has some sound economic and social science behind it, plus they have a growing dataset of other survey respondents against which your responses are compared. This is one of the more tricky parts about personal risk preferences and setting an asset allocation strategy.
The objective of personal investment risk tolerance analysis is not just to measure one’s desire to avoid risk, because almost all people are risk averse investors. The goal of proper investment risk tolerance analysis is to assess your personal risk preferences against the backdrop of a representative sample of other investors.
Finametrica has a database of over one-half million other investors who have already completed the questionnaire from major developed, English speaking countries around the world, including the US, UK, Canada, New Zealand, and Australia (where they are based). (There also is a French Canadian risk tolerance questionnaire available.)
You should note that there is absolutely no business relationship of any kind between this website and Finametrica’s MyRiskTolerance.com website. This not a paid review or recommendation of any kind, and this website will not receive compensation of any kind, if you decide to use Finametrica’s investment risk tolerance questionnaire.
Here is a durable link to this survey that we maintain on The Skilled Investor website: Investment Risk Analysis Just click this investment risk analysis link and you will be redirected to the investment risk tolerance survey on the MyRiskTolerance.com. When you get to the MyRiskTolerance.com website, read the page and then just click the link entitled “Click here to do your FinaMetrica Risk Profile online” near the bottom of the text in that page. If you want to learn more, follow the links in the blue horizontal bar that will lead you to other information on their website.
Here are a couple of hints as to how to do this online investment risk tolerance survey. If you decide to go ahead with the MyRiskTolerance.com questionnaire, remember to use an Internet Explorer browser, because the IE browser works with the WorldPay system that they use. The company is based in Australia, and they do not use PayPal. The survey costs about $50 in US dollars to take. (Obviously, Finametrica’s prices are subject to change without notice, and they set their own prices. Survey prices are different for other countries.)
If two people are going to complete the survey, then each person should fill out the survey separately and then compare results, after both have completed their investment risk survey independently. Remember to save off a printable copy of each person’s survey results to your home machine.
The personalized investment risk tolerance analysis profiles that you get after you complete the questionnaire are detailed and very informative. They explain your results and compare them to the responses of others who have completed the survey before you. When the particular answers that you give differ from the responses of other investors who have a similar investment risk tolerance profile to yours, these differences are explained to you.
With your personalized risk tolerance analysis, you can do a better job of determining your portfolio asset allocation percentages. Then, you can buy the needed low cost, broadly diversified, passively managed index funds to fill out the asset allocation of your portfolio directly from the lowest cost vendor or via a discount broker.
Assessing your investment risk tolerance is vital to developing a fully personalized plan for long-term financial success
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