It is essential to determine your risk profile prior to investing so that your asset allocation is suitable to your needs. I came across an Ord Minnett questionnaire that I thought was quite useful. As you complete each question, add the points up and check your results out below.
1)Which of the following best describes your purpose for investing?
a) An investment horizon longer than 5 years. You understand investment markets and mainly invest for growth, to accumulate long term wealth(50pts)
b) You have surplus funds to invest and aim to accumulate long term wealth from a balanced portfolio(40pts)
c) You have a lump sum (eg an inheritance) and are uncertain about the secure investment alternatives available(30pts)
d) You are nearing retirement and want sufficient funds to enjoy your retirement(20pts)
e) Some specific objectives within the next five years, for which you want to accumulate sufficient funds(10pts)
2)Which of the following best describes your current stage of life?
a) Single, with few financial burdens. You are keen to accumulate wealth for the future(50pts)
b) A couple without children. Preparing for the future by establishing a home. A high purchase rate of consumer items(40pts)
c) Young family, with a home. You have a mortgage and maintain only small cash balances(30pts)
d) Mature family. You're in your peak earning years and have the mortgage under control. You partner works and children are growing up and require less supervision/have left home. You're thinking about retirement(50pts)
e) Preparing for retirement. You probably own your home and have few financial burdens; you want to ensure you can afford a comfortable retirement. Interested in travel, recreation and self education(20pts)
f) Retired. You rely on existing funds and investments to maintain your lifestyle. You may be receiving a pension. Keen to enjoy life and maintain your health(10pts)
3) In the light of current interest rates, what return do you reasonably expect to achieve from your investments?
a) A reasonable return, without losing any capital(10pts)
b) Current inflation rate plus 2-4% per annum(20pts)
c) Current inflation rate plus 5-7% per annum(30pts)
d) Current inflation rate plus 8-12% per annum(40pts)
e) Greater than d). (50pts)
4) How familiar are you with investment markets?
a) Experienced with all investment sectors and understand the various factors which influence performance(50pts)
b) Understand that markets fluctuate and that different market sectors offer different income, growth and taxation opportunities(40pts)
c) Have enough experience to understand the importance of diversification(30pts)
d) Not very familiar with investment markets(20pts)
e) Very little understanding or interest(10pts)
5) Would you ever consider using derivative products such as Options and Warrants as part of your investment strategy?
a) I would consider using derivatives as a defensive strategy and as a means of generating additional income for my portfolio(30pts)
b) I would consider using derivatives as part of a defensive strategy only(20pts)
c) I have a good understanding of derivative products and I am interested in trading these for profits(50pts)
d) Not very familiar with derivatives(10pts)
e) Never- I consider derivatives to be too risky(0pts)
6) How long would you expect most of your money to be invested before you would need to access it (assuming you have made plans to meet short term financial objectives and to handle emergencies)?
a) Less than 2 years(10pts)
b) Between 2 and 3 years(20pts)
c) Between 3 and 5 years(30pts)
d) Between 5 and 7 years(40pts)
e) Longer than 7 years(50pts)
7) What would your reaction be if six months after placing your investment, you discover that, in line with what is happening in the financial markets generally, your portfolio has decreased in value by 20%?
a) Horror. Security of your capital is critical and you did not intend to take such risks(10pts)
b) You would cut your losses and transfer your funds into more secure investment sectors(20pts)
c) You would be concerned, but would wait to see if the investments improve(30pts)
d) This was a calculated risk and you would leave the investments in place, expecting performance to improve(40pts)
e) You would invest more funds to lower your average investment price, expecting future growth(50pts)
8) If you didn't need your capital for more than 10 years, how long would you be prepared to see your investment performing poorly before you cashed it in?
a) You would cash it in immediately if there were any loss in value(0pts)
b) Up to 3 months(20pts)
c) Up to 6 months(30pts)
d) Up to 1 year(40pts)
e) Up to 2 years(50pts)
9) How stable is your current and future income from sources such as salary, superannuation, allocated pensions or other investments?
a) Very stable(50pts)
c) Somewhat stable(30pts)
e) Very unstable(10pts)
10) Do you have any separate savings set aside for major expenses? This may include things like education, home mortgage payments, home repairs and retirement?
a) I have no upcoming expenses other than my retirement living expenses(10pts)
b) Yes, I do have separate savings to meet my expenses(20pts)
c) I have a small amount of savings and a large credit card limit on my credit card for emergencies(40pts)
d) I have no savings, but can use my credit card for emergences(40pts)
e) No, I do not have separate savings to meet major expenses(50pts)
Total Investor Profile Score - add up your points and match the profile scores to the Investor Profile summaries below:
Investor Profile Score Card
Defensive (0-120 points)
You are a defensive investor. Risk must be very low and you are prepared to accept lower returns to protect capital. The negative effects of tax and inflation will not concern you, provided your initial investment is protected.
Moderate (121-230 points)
You are a moderate investor seeking better than basic returns, but risk must be low. Typically, you are an older investor seeking to protect the wealth which you have accumulated, and you prefer to consider less aggressive growth investments.
Balanced (231-340 points)
You are a balanced investor who wants a balanced portfolio to work towards medium to long term financial goals. You require an investment strategy, which will cope with the effects of tax and inflation. Calculated risks will be acceptable to you to achieve good returns.
Growth (341-460 points)
You are a growth investor, probably earning sufficient income to invset most funds for capital growth. Prepared to accept higher volatility and moderate risks, your primary concern is to accumulate assets over the medium to long term. You require a balanced portfolio, but more aggressive investments may be included.
High Growth (461-500)
You are a high growth investor prepared to compromise portfolio balance to pursue potentially greater long term returns. You investment choices are diverse, but carry with them a higher level of risk. Security of capital is secondary to the potential of wealth accumulation.
So which category did you fall into? If you think this quiz was an accurate(or inaccurate) profiling, your comments will be welcome. I got 420 points and fall directly into the Growth category. Which is just about right for my risk profile :)