Below are some of those questions that can help you in understanding your risk abilities. Every investment comes with some degree of risk, even everything in life for that matter. Taking risk isn't a bad thing but knowing and acknowledging your risk capacity helps to succeed in investing. It is important to assess how much risk one can take.
You are the best judge to decide how much of a risk can you take. Answer these questions honestly and keep a tab of which option you choose for each question as at the end you can tally it and get your risk appetite score.
1. How stable is your income?
a. Very stable
b. Stable
c. Unstable
2. How many people are dependent on you?
a. No dependents
b. 1 or 2 dependents
c. 3 or more dependents
3. How much of your income is going into mandatory commitments (unavoidable) every month?
a. < 10%
b. 10 – 30%
c. > 30%
4. What is your age?
a. < 30 Years
b. 30 – 40 Years
c. 40+ Years
5. Do you have any short term goals (wedding, new house, etc.)?
a. No
b. Yes, but I am covered for those expenses
c. Yes, I have to save up to the event
6. What is your investment horizon/How long can you keep your money invested?
a. 10+ Years
b. 3 – 10 Years
c. < 3 Years
7. You lost 30% due to market fall. What will you do with the stock?
a. Buy more stocks
b. Hold stock
c. Sell and plan to buy when the market falls further
8. Where would you be comfortable to park your money?
a. Equity or Mutual Funds
b. Long Term Fixed Deposits
c. Cash or equivalents
When you answer these questions depending on your current financial situation, you would be able to access your risk profile. If most of the answers for the above questionnaire were option (a), you can assume that you fall into a High-Risk Category. If your options where more on (b), you can safely assume that you are a moderate risk taker and low risk otherwise.
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