Quiz 36
What’s My Investment Style?
Each investor favors a certain style of holding onto her money and helping it grow so she can meet her goals. That style has primarily to do with financial risk tolerance. Being familiar with your style of investing can help you make more consistent choices.
Investment style essentially comes down to three different modalities: conservative, moderate, and aggressive. Which one best describes your approach?
Take the Test
Pick the response that most closely mirrors your preference:
1. Which of the following sounds like your investment philosophy?
a. I never want to lose want I already have.
b. Slow and steady wins the race.
c. “Quick” is the best way to get rich.
2. Which of the following would be your most likely criterion for buying a house?
a. I plan to pay off the mortgage and live in the house for the rest of my life.
b. It’s in a great location for eventual resale.
c. It’s in foreclosure and I can renovate it and flip it.
3. You just inherited $100,000 with the proviso that you must invest it for your children’s college education. Which of the following are you most likely to invest it in?
a. Treasury bills and certificates of deposit.
b. Mutual funds.
c. Individual stocks.
4. Would you ever consider buying stock in an IPO?*
a. What’s an IPO?
b. Probably not.
c. Yes.
5. Would you ever consider buying a penny stock?
a. No, but I save pennies in a jar.
b. Not likely.
c. Yes.
6. If the stock market dropped 10-15 percent you would …
a. Feel smug if you owned no stocks, or cash out if you did.
b. Continue investing the same amount as before each month in mutual funds.
c. Actively search for undervalued bargains.
7. Your liquid emergency savings would cover your living expenses for …
a. At least six months.
b. A month to a couple of months.
c. What liquid emergency savings?
* An IPO is an initial public offering. It is the first sale of stock by a private company to the public. IPOs are usually issued by smaller, younger companies seeking capital to expand, but might also be offered by large private companies seeking to become publicly traded.
Scoring and Explanation
Tally your number of “A”, “B”, and “C” responses:
• A majority of “A” responses indicates that you have a conservative investment style. Your priority is holding on to what you have. You only want to make investments whose value will never dip below where you started. If you are an older investor looking toward imminent retirement, this is a justifiable style. But if you are a younger investor, you might want to explore some moderately risky investments, perhaps pursuing a strategy of investing a steady amount each month in a portfolio of mutual funds. Every investment style has risk—even your conservative style! If you are young and resist any temporary loss at all, you actually risk that all you save could eventually be outpaced by higher costs of living.
• A majority of “B” responses indicates that you have a moderate investment style. Your priority is steady growth of what you have. You likely own a mix of investments, with some higher risk than others. Although you might well flinch when your investments take a dip, you can grin and bear a bear market by reminding yourself that investments move in cycles.
• A majority of “C” responses indicates that you have an aggressive investment style. You are at the high end of the risk tolerance spectrum. You are willing to invest higher amounts of money in riskier ventures in the hopes that you will yield far greater returns. You have a strong stomach for market gyrations and are always looking for a way to cash in on any market move.
Note: All three investment styles are valid approaches to investments under certain circumstances. However, it is important to make sure your style matches your goals. To that end, be sure to define your goals. Know what you want money for. Are you planning for a near-term retirement? That’s very different than trying to build an empire as an ambitious 20-something. Be sure to periodically review and revaluate your priorities as you grow older, raise a family, and so on.
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.