Online Tools to Help Determine Investment Risk - dummies

Online Tools to Help Determine Investment Risk

By Matt Krantz

Before you start to invest online, you need to know how much you can invest. Most beginning online investors are so interested in finding stocks that make them rich overnight that they lose sight of risk. But academic studies show that risk and return go hand in hand. That’s why you need to know how much risk you can stomach before you start looking for investments and buying them online.

Several excellent online tools can help you get a handle on how much of a financial thrill seeker you are. Most are structured like interviews that ask you a number of questions and help you decide what kind of investor you are. These are kind of like personality tests for your investment taste. These questionnaires are worthwhile to take right away so that you can understand what kind of investor you are:

  • Vanguard’s Investor Questionnaire asks you ten salient questions to determine how much of a risk taker you are with your money. It determines what your ideal asset allocation is. Take note of the breakdown. The closer to 100 percent that Vanguard recommends you put in stocks, the more risk-tolerant you are, and the closer to 100 percent in bonds, the less risk-tolerant you are.

  • Index Funds Advisors Risk Capacity Survey offers a quick risk survey that can tell you what kind of investor you are after answering just five questions. You can also find a complete risk capacity survey that hits you with a few dozen questions. Whichever you choose, the survey can characterize what kind of investor you are and even display a painting that portrays your risk tolerance.

  • Charles Schwab Investor Profile Questionnaire gets you to think about the factors that greatly determine how you should be investing, such as your investment time horizon and tolerance for risk. The Schwab questionnaire can be printed so you don’ t have to be in front of a computer to take it. At the bottom of the questionnaire is a chart that helps you see how aggressive or conservative you should be with your portfolio.