Sunday, October 18, 2009

Risk profile.

A term you may or may not be familiar with is risk profile. This is based on a term called risk tolerance, which is a "more specific measure of the degree of uncertainty that an investor is willing to accept in respect of negative changes to its business or assets".

In short, this term means "how much money am I willing to lose before it really freaking bothers me!", and it should be considered before embarking on any investment.

Amassing any sort of "war chest" or savings is a very difficult goal, but one that is incredibly necessary for your financial health. If you are already saving, how much are you willing to lose? The answer I usually respond with is, "I don't want to lose anything! Duh!"

Oh, if it were that easy, then this blog post would not need to exist.

But it's not that easy, and people lose gobs of money everyday in the stock market. If you abhor/hate the idea of losing money on your investments, which by common wisdom are supposed to make you money, then stay with me for another minute.

Perhaps you are taking too much risk in your investments. If you had anything in stocks last year that was not "short", or betting against the market, then you probably had a relatively horrible year compared with some recent years of investing. If this bothered you in the least, I have an easy solution.

Take less risk. These three powerful words are unpopular ones to people who are chasing returns, but there is an easier way than chasing returns. It is easy to tout your respective stocks/mutual fund returns when the times are good, but it takes a lot to admit when you did not do so swell on your investments. I have no qualms about others learning from my mistakes, and I "lost" quite a percentage last year on my investments. This is in large part due to my love for stocks, and general disdain for bonds.

Let's just say this has changed. I was neglecting bonds previously, as I figured I had been doing pretty well with stocks the last five years.

What about you? Do you have any holdings besides stocks/mutual funds? If you do not, why? It may be worth it to you to check out this free "risk profile" from Finametrica. The only required information is an email address, I just used my initials for my first and last name.

My score was 70, what is yours?


  1. Since I'm just starting out, I have about half of my money going into bonds for more short term goals (school, house, etc) that hopefully will have a higher return then if I had it in a savings acount.