Personal Risk Assessment
You can evaluate your personal willingness to take investment risks through self-reflection, by analyzing past events such as previous losses suffered and the emotions that stemmed from those losses, by speaking with knowledgeable investment advisors, and by completing one or more risk tolerance assessment questionnaires. These questionnaires use the answers you provide to various questions to score your risk tolerance and provide an asset allocation based the score you achieve. An asset allocation sets the percentage of equities, fixed income (bonds, etc.), and cash into which your portfolio assets are to be divided.
Be aware, though, that these questionnaires may not always accurately define your risk tolerance; you must also use common sense. After completing a questionnaire, if you find it is not a reasonable reflection of your risk tolerance, you may find it beneficial to complete a second questionnaire from a different source.
Note: Before you can purchase mutual funds in Canada, an investment advisor must complete a risk assessment for you.
Then prepare a submission of two or three short paragraphs in total (from three to four sentences in each paragraph), discussing personal willingness to take risk, personal ability to take risk, and unique circumstances that may apply to you. This should be done in addition to completing and submitting the risk tolerance assessment questionnaire assigned in Practice Problem 3 in Lesson 2. Recognizing your risk tolerance is imperative to understanding the types of assets you should invest in and the overall asset allocation of your investment portfolio. Your risk tolerance might change over time or with a change in your personal situation, such as getting married or having a child.