Knowing your Investor Profile is very important to investing. In order to set yourself up for success in the stock market you need to know what type of investor you are and what type of risk tolerance you have. As a general rule of thumb, the greater the reward, the greater the risk you must take. Most people don’t want to lose money but would like to make a lot. Unfortunately, there is no such thing as a free lunch in the stock market. In order to profit, you must take some degree of risk. Finding that balance between risk and reward is critical. Taking a reality check
now will set you up for success in the future. This is a general guide to identify your tolerance for risk.
Take 5 minutes to complete this Investor Profiling exercise………
Answer the following 12 questions. Write down the number of the answer to each question which most accurately reflects you. There is no right or wrong answer here just answer honestly for yourself.
Question 1: What is your major goal for investing in the Stock Market?
1. Secure retirement income
2. Stability for retirement but I don’t like fluctuating returns
3. I don’t mind short term volatility but want long term growth
4. Maximise growth of the portfolio over the long term
Question 2: How long do you intend letting your investment grow?
1. Under 3 years
2. 3-7 years
3. 8-12 years
4. More than 12 years
Question 3: During the next 5 years what portion of your portfolio do you intend
4. Less than 25%
Question 4: What is your current age?
1. Over 70
4. less than 35
Question 5: Which of the following best describes your family income?
1. Under $40K
4. Over $100K
Question 6: What is your family net worth after deducting all loans, mortgages etc…?
1. Under $40K
4. Over $150K
Question 7: How would you rate your overall financial situation?
1. Not Good – No Savings, or very little savings and large debt
2. Okay – Some savings and manageable debt
3. Mostly Debt Free and saving regularly
4. Secure – Debt Free
Question 8: Other than stock market income what other income will you have at retirement?
2. Rental property
3. Other savings/pensions
4. Myself & partner savings, pensions and investments
Question 9: How would you rate your investment knowledge?
2. Modest – Know a little but not much experience
3. Good – I’ve been investing a while and survived at least one crash
4. Very Good – Experienced and comfortable with the ups and downs of the
Question 10: Stock markets have crashed in the past and recovered but recovery can take a while. How long can you wait for a recovery?
1. Less than a year
2. 1-2 years
3. 3-4 years
4. Over 4 years
Question 11: What level of short term risk are you comfortable with?
1. Less than a 20% drop
2. A 20%-30% drop
3. 30%-40% drop
4. More than 40%
Question 12: The stock market is about weighing up risk and reward which best
1. I always consider how much I lose first
2. I consider the loss more than the reward
3. I consider the reward more than the loss
4. I only focus on reward
Now add up all of the numbers to the answer of the 12 questions above.
Investor Profiling Results…….
This is a general guide so you can identify what type of stocks may be for you.
Now that you have a general idea on your investor profile, you can start looking for the types of stocks or investment products that suit your investor profile. This is really important as it stops you from investing in investments that do not suit you.
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