The risk that you are able to stomach in your everyday life typically translates into the heat you can handle in the investment world. To find out what your risk tolerance is, take this quiz:
Your friends would typically describe you as:
You win $100 at a friendly game of poker and:
Your dream vacation would be:
The thought of investing in the stock market makes you feel:
How much heat should you handle?
Now, you might consider yourself a thrillist, but should you act that way in the market? Maybe. Maybe not. That depends mostly on your age, but also when you need your money, how much money you can afford to lose and what you want to get with the money you invest. For some basic guidelines for the level of risk you should take on, let’s take another quiz:
How old are you?
What is the next big purchase you are focused on?
When is your next big purchase?
I expect my income to:
Conclusion: What you want to do with your money versus what you should do with your money
Reconciling who you want to be as an investor and who you should be as an investor is one of the biggest challenges in setting up your investment road map. Yes, you need to determine how aggressive you are going to be before you start so your investment options are narrowed down. There are a zillion options for investing. Determining a conservative, moderate or aggressive approach early on narrows the world down significantly. I find that doing that makes a foray into the investment world feel more manageable and less intimidating.
If you found you answered mostly As on both quizzes or strongly on the second one, you are going to be a conservative investor.
If you answered mostly Cs on both quizzes, then you are an aggressive investor.
But if you answered mostly Bs on both or As on the first and Cs on the second, then you are a more moderate investor.