Can You Handle Risk? Take the Quiz!

Have you heard the expression “no pain, no gain”? In the entrepreneurial and investing world, the comparable phrase would be “no risk, no reward.” How you feel about sacrificing the time spent not making a cent and risking your money will drive much of your decision-making.

The risk-comfort scale extends from very conservative (you don’t want 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 investors’ 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 $300 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) sit 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 stand-by and pay anywhere from $100 to $300 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 stand-by and also arrange vacation insurance because you’re leery of the tour operator

D) take your chances with stand-by.

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 it for $15,000. (Units have recently sold for close to $100,000, and prices seem 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 conversion 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 tell the owner you would invest more if allowed

B) purchase all 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) quarter slot machines

B) $5 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 new to you. How do you pick a place?

A) read restaurant reviews in the local newspaper

B) ask co-workers 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 restaurant 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

SCORING SYSTEM

1. A: 1 B: 4 C: 2 D: 3

2. A: 4 B: 1 C: 3 D: 2

 

3. A: 3 B: 4 C: 2 D: 1

 

4. A: 2 B: 3 C: 1 D: 4

 

5. A: 3 B: 4 C: 2 D: 1

 

6. A: 4 B: 3 C: 2 D: 1

 

7. A: 1 B: 3 C: 2 D: 4

8. A: 2 B: 3 C: 4 D: 1

9. A: 4 B: 3 C: 2 D: 1

10.A: 2 B: 3 C: 1 D: 4

What your total score indicates:

  • 10-17: You’re not willing to take chances with your money, even though t means you can’t make big gains.

  • 18-24: You’re semi-conservative, willing to take a small chance with enough information.

  • 25-32: You’re semi-aggressive, wiling to take chances if you think the odds of earning more are in your favor.

  • 33-40: You’re aggressive, looking for every opportunity to make your money grow, even though in some cases the odds may be quite long. You view money as a tool to make more money.

How did you do? The majority of those who take the test fall under the 25-32 point category. As I’ve noted earlier, the more risk involved in any undertaking, the more reward given for taking that additional risk.

 

Remember, only invest as much money in a risky venture as you can afford to lose. It feels great when you see your money sky rocket after putting your funds in an investment that isn’t as safe as a bond or treasury bill, but don’t bank on making 30% every week. If you started your business, and it’s doing well financially within the first year, congratulations! But remember to stay consistent; don’t leave a business on autopilot and hope that it generates consistent returns without doing anything.

 

Diversify, and don’t put all your eggs in one basket. Knowledge is power, so do your research thoroughly. Invest Wisely.

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