Risk Capacity Quiz

1. AGE (OR TIME HORIZON). Generally, the younger you are, the more risk you can tolerate because the longer your investment time horizon is. If you are entering or in your "golden years", give yourself 1 point. If you are middle or late middle aged, 2 points. And if you are young or early middle age, 3 points. YOUR ANSWER:

2. INCOME. The higher your income is, the more risk you can take, because if your investments don't work out, your income can pick up the slack. If your income is low, 1 point. Medium income, 2 points. High income, 3 points. YOUR ANSWER:

3. EMPLOYMENT. The more long term stable your employment is, the more risk you can take, because your income is not likely at risk. If you are unemployed, retired without a pension, or your employment is not steady, 1 point. Medium job stability, 2 points. Stable long term employment, 3 points. YOUR ANSWER:

4. SAVINGS. The larger your existing savings (i.e., your existing wealth, whether it is held in securities, real estate, or other), the more risk you can take as you have more cushion against losses. If your savings are inadequate given your age, 1 point. Average savings, 2 points. Ample savings given your age, 3 points. YOUR ANSWER:

5. INHERITANCE. The larger (and more certain) a future inheritance or future expected windfall is, the more risk you can take, as the inheritance can cushion against losses. If you have no, unknown, or little inheritance coming, 1 point. Moderate inheritance, 2 points. Large inheritance, 3 points. YOUR ANSWER:

6. SPENDING/NEEDS. The more modest your goals and needs that require cash are, the more risk you can take as your expense levels are lower. If you have extensive goals and needs that require cash, 1 point. Moderate goals and needs, 2 points. Basic needs, 3 points. YOUR ANSWER:

7. INSURANCE. Are you adequately covered for the following risks: the risk that you lose your income if you become disabled? the risk that your valuable property is destroyed or stolen? The risk that someone is seriously injured or killed around you or your property? The risk that you lose your income if you lose your life before your life expectancy? The risk that you require expensive long term care in later years? If your insurance coverage is inadequate, 1 point. If you are covered in some of these, 2 points. Full or extensive coverage, 3 points. YOUR ANSWER:

TOTAL =
SUBTRACT 7
DIVIDE BY 14
THE RESULT IS YOUR STOCK ALLOCATION (%), THE REMAINDER IS BONDS