Test Your Risk Tolerance

Before you can decide on a personal investment strategy, you need to consider how much or how little risk you are prepared to take with your money.

Suitability

Risk fits into the overall issue of suitability. Every registered investment advisor in Canada is required by law to recommend only investments that are appropriate for an investor’s goals, financial situation, and risk tolerance. Go to the Know Your Advisor section to find out more about working with a registered investment advisor.

Factors that Affect Your Risk Tolerance

• Time Horizons – The amount of time you have to meet your financial goals and to make up for any losses you might experience. People with long time horizons may be more willing to accept more risk than those who are saving to meet a short-term financial goal.
• Cash Requirements – The extent to which you depend on your investments to meet day-to-day expenses. Investors who rely on their investments to meet daily living expenses will be much less comfortable with the risk of losses.
• Emotional Factors – Your emotional response to changes in the value of your investments. Some people are quite comfortable with the ups and downs of the market, while others lose sleep when their investments fluctuate in value.

Risk Test

Take our Risk Test to help determine how much risk you feel comfortable with.

1. Your best friend says his uncle will give you a chance to invest in a gold property in northern BC. He says the investment will double before the end of the year. What do you do?
   1. Weigh the risks and decide not to invest.
   2. Invest $1,000, an amount you can afford to write off.
   3. Get information about the company. If there’s potential, invest $5,000.
   4. Drain your savings to buy as many shares as possible.
2. Your boss is going to pay a year-end bonus and gives you a choice between $500 cash or $600 in company stock. You can’t sell the stock for at least 12 months, and in that time the stock price could go up or down. What do you do?
   1. Take the money while you can.
   2. Take the stock, because you believe in your company’s potential.
3. A friend invites you to join a hockey pool with a $20 buy-in. You could win over $500. What do you do?
   1. Say no thanks.
   2. Ask another friend to split the cost, since a $10 loss is better than a $20 loss.
   3. Make some educated guesses, and place your bet.
   4. Find out if you can purchase two pools to increase your odds of winning.
4. Your parents decide to give you an early inheritance of $10,000, asking that you invest it wisely. What do you do?
   1. Buy the high-priced item you’ve had your eye on.
   2. Put the cash in a safe-term deposit earning 2% interest a year.
   3. Invest it all in a start-up company with huge potential rewards (and risks).
   4. Get a financial adviser to help you diversify your investments.
5. A stock you bought over a year ago has suddenly increased in value by over 40%. What do you do?
   1. Consider selling enough to cover your original investment.
   2. Borrow money to buy more stock.
   3. Sell, and move your cash to a low-risk investment.