Why do you need to know about risk?

Any investment decision you make means that you must take a risk of some sort. And the decision will relate to the amount of money you invest, your circumstances at the time and your needs for the future. Basically, risk is the chance that you will not achieve your financial goals.

Tip: The Golden Rule is – The higher the expected returns, the higher the likely risk.

Usually when you make an informed decision to take on a certain risk, you create the opportunity for greater returns. Generally, the higher the level or short-term risk you are prepared to accept when investing, the higher long-term potential return will be. At the same time, the potential loss may also be higher. This is called the risk/reward trade-off.

1	You inherit $30,000. After meeting any commitments, where would you invest this money?
In the bank.
in fixed term deposits.
In a spread of different investment types.
In shares.
2	What level of return do you expect you investment to achieve?
A steady return without losing any capital.
1-2% above inflation.
3-4% above inflation.
5% or more above inflation.
3	How important is it that your investments keep pace with inflation?
Not important - you would rather protect your capital.
A little important - but you're prepared to take unnecessary risks
Fairly important - you know that you'll need to take some risk to ensure returns above inflation.
Very important - your priority is for these funds to grow significantly above inflation.
4	How would you feel about the value of your investment going up and down, sometimes by as much as 30% or more, over a short period of time such as a year or less?
Not concerned.
A little concerned.
Fairly concerned.
Very concerned.
5	What is the main purpose of the investment?
High returns.
Retirement Savings.
Specific objectives.
Security.
6	If asked about the exchange rate, you:
Look blank.
Have heard it's weak, but no more.
Bemoan the effect it had on your overseas holiday.
Quote the price in $US.
7	An investment in overseas funds is, to you:
Highly risky.
Don't know much about it - but would consider it.
A good way to reduce your dependence on the Australian Market
An essential part of a long term portfolio.
8	What do you want to achieve through this investment?
Maintain capital with low opportunity for capital growth.
Generate an income stream.
Achieve steady capital growth with no need for current income.
High capital growth.
9	Do you have separate savings set aside for major expenses? This may include things like education, home mortgage payments, home repairs and retirement.
I have no upcoming expenses other than my retirement living expenses
Yes, i do have separate savings to meet major expenses.
I have a small amount of savings and a large credit limit on my credit card for emergencies.
No, i do not have separate savings to meet major expenses.
10	If a long-term investment started to lose money, you would:
Sell or change the investment immediately.
Consider selling but never get around to it.
Monitor the investment more closely in the future.
Treat the loss as a short-term set back which will soon reverse
11	You view an investor as:
Someone willing to take unnecceary risks.
Someone with special skills or knowledge.
Someone like yourself.
Nothing special - everyone has some kind of investment.
12	In Investment terms, you regard yourself as:
Very conservative.
Fairly conservative, but with a view to returns.
Willing to take risks to improve returns.
Willing to take more risk than most to improve returns.
13	You understand investment risk to be:
Risk means that you could lose everything.
Risk means that you could lose some of the growth you investment has made ( but the capital stays intact).
Risk is something that is managed by the investment manager - not something for you to worry about.
Risk is the likelihood of your investment going up or down in value at any given time.
14	What is the likelihood of your requiring access to the invested money?
Almost certainly required within the next 3 years.
Little chance of requiring the majority of funds for at least 3-5 years. A small portion would only be required in case of emergency.
Little chance of requiring the majority of funds for at least 5-7 years. A small portion would only be required in case of emergency.
No access at all required for at least 7 years. Other funds have been set aside for emergencies.
15	How long are these funds to be invested for?
7 years or more.
5 years or more.
3 years or more.
Less than 3 years.

Your score is

The recommended investment model for you is What does this mean?