David Salazar June 22nd 2019 Tools
The Risk Profile MOD Calculator
Risk is Subjective and Objective
There can be many reasons why you are here on this page.
- You just read my “ultimate guide to investing for beginners” article and saw that I mentioned the term “risk profile” a lot and thought you should find out more information about it.
- You’ve taken “risk tolerance questionnaires” before from either robo-advisors or large financial service firms and just want to compare results.
- You want to start investing, and you know that finding out your risk profile is essential.
Regardless of the reason, I’m glad you are here.
Most financial service firms have Risk Tolerance Questionnaires that are designed to get you invested in their products. They sometimes only measure one aspect of your risk profile – your emotional comfort to risk. More kinds of risk need to be considered and gauged before making an investment decision.
Risk Profile
This Risk Profile Questionnaire is divided into two elements - Risk Capacity and Risk Tolerance. After assessing these two elements, you will not only have a better understanding of your financial goals, but you will know how much risk you are comfortable taking and how much risk is required to get there.
Risk Capacity
The methodology behind assessing your capacity to take risk is by
measuring your:
- Time-Horizon - the length of time before you need to liquidate your investments
- Liquidity - the amount of cash you have readily available (checking, savings, etc.)
- Income - the source of your income and your net-worth
- Reliability - the stability of your source of income
Risk Tolerance
The methodology behind assessing your tolerance to take risk is by
measuring your:
- Behavior - how you would/do behave towards risky situations
- Perception - how you perceive risk
- Short-term - your short-term attitudes towards risk
- Volatility - how sensitive you are towards market swings
