Use the questionnaires "How much risk is right for you"? (Exhibit 2.4) to determine your risk tolerance. Use this information to help write a policy statement for yourself.
You've heard the expression "no pain, no gain"? In the investment world, the comparable phrase would be "no risk, no reward."
How you feel about risking your money will drive many of your investment decisions. The risk-comfort scale extends from very conservative (you don't wart to risk losing a penny regardless of how little your money earns) to very aggressive (you're willing to risk much of your money for the possibility that it will grow tremendously). As you might guess, most impostors' tolerance for risk falls somewhere in between. If you're unsure of what your level of risk tolerance is, this quiz should help.
1. You win 5300 in an office football pool. You: (a) Spend it on groceries, (b) Purchase lottery tickets, (c) put it in a money market account, (d) buy some stock.
2. Two weeks after buying 100 shares of a $20 stock, the price jumps to over $30. You decide to: (a) buy more stock; it's obviously a winner, (b) sell it and take your profits, (c) sell half to recoup some costs and hold the rest, (d) se tight and wait for it to advance even more.
3. On days when the stock market jumps way up, you: (a) wish you had invested more. (b) call your financial advisor and ask for recommendations, (c) feel glad you're not in the market because it fluctuates too much, (d) pay little attention.
4. You're planning a vacation trip and can either lock in a fixed room-and-meals rate of $150 per day or book standby and pay anywhere from $100 to S300 per day. You: (a) take the fixed-rate deal, (b) talk to people who have been there about the availability of last-minute accommodations, (c) book standby and also arrange vacation insurance because you're leery of the tour operator, (d) take your chances with standby.
5. The owner of your apartment building is converting the units to condominiums. You can buy your unit for $75,000 or an option on a unit for $15,000. (Units have recently sold for close to 6166,000, and prices seam to be going up.) For financing, you'll have to borrow the down payment and pay mortgage and condo fees higher than your present rent You: (a) buy your unit. (b) buy your unit and look for another to buy, (c) sell the option and arrange to rent the unit yourself, (d) sell the option and move out because you think the con-version will attract couples with small children.
6. You have been working three years for a rapidly growing company. As an executive, you are offered the option of buying up to 2% of company stock: 2,000 shares at $10 a share. Although the company is privately owned (its stock does not trade on the open market), its majority owner has made handsome profits selling three other businesses and intends to sell this one eventually. You: (a) purchase all the shares you can and toll the owner you would invest more if allowed, (b) purchase al the shares, (c) purchase half the shares, (d) purchase a small amount of shares.
7. You go to a casino for the first time. You choose to play: (a) quarts slot machines, (b) 55 minimum-bet roulette, (c) dollar slot machines, (d) $25 minimum-bet blackjack.
8. You want to take someone out for a special dinner in a city that's now to you. How do you pick a place? (a) read restaurant reviews in the local newspaper, (b) ask coworkers if they know of a suitable place, (c) call the only other person you know in this city, who eats out a lot but only recently moved there, (d) visit the city sometime before your dinner to check out the restaurants yourself.
9. The expression that best describes your lifestyle is: (a) no guts, no glory. (b) just do it! (c) look before You leap, (d) all good things come to those who wait.
10. Your attitude toward money is best described as: (a) a dollar saved is a dollar earned, (b) you've got to spend money to make money, (c) cash and carry only, (d) whenever possible, use other people's money?