Once you are ready to start investing your hard-earned money and let your money start doing some work for you, you’ll need to figure out your level of risk tolerance. We are all unique in many different ways, and the level of risk we are willing to take varies from each individual. Some individuals have a very low tolerance of risk. They are scared of any idea that involves losing something in return for a large return. While other individuals get excited about the prospect of making a large return on their money with the notion that they might also lose a bunch of money.
I found this little quiz that asks a series of questions to help measure your level of tolerance. GO HERE, to take the quiz. Remember to answer honestly, not what you think the quiz wants you to answer, because some of the questions will be obvious as to what makes you more of a risk taker. My score was 64% based on 100 percentage points, which I think is pretty accurate. If I would have rated myself off the cuff, I would have said 70 to 75 percent, so I thought the quiz was pretty accurate for being such a simple little quiz.
So, what was your score? If you received a score close to 0, then you might want to consider taking some more risk in life. The reason that I say that is if you apply that level or risk tolerance to your investments, your money will end up rotting away and getting eaten up by inflation. On the other hand, if your score was close to 100%, then you need to tone it down a little bit, because you’ll be the type of person who falls for a get-rich-quick scam or stupid investment products that only make brokers rich.
Knowing and understanding your level of risk tolerance is very important, and it will save you thousands of dollars over your lifetime. My personal opinion is that individuals in their twenties and thirties should have a score of 50% or more risk tolerance, because you have decades to ride out the waves of the stock market. Be aggressive when you are young with your investments, but don’t invest in anything that you don’t understand or doesn’t have a track record of great long-term performance.
Identifying your level of risk tolerance will also help your marriage. My wife’s level of risk tolerance is MUCH lower than mine. But, we complement each other, because we both know our differences. She keeps me grounded so I don’t lose all of our money, and I make sure that our money works for us, rather than sit in a money market account. Know your level of risk tolerance, and use it to help you win, not lose with money.