Business & Finance Investing & Financial Markets

How to Calculate Risk Tolerance

    • 1). Obtain a risk-profile questionnaire. Many are available online or from an investment professional, such as a financial adviser.

    • 2). Complete the questionnaire. Usually, you will be asked about your age, how much variability in your investments' performance and value you can tolerate and how long your investment time horizon is. There is no right or wrong answer for any question. Each question is designed to help you learn about yourself and how you want to invest.

    • 3). Using the scoring guide, determine your point score.

    • 4). Using the explanation of your point score, read the questionnaire's description of you as an investor. See whether it fits. If not, look at your answers. Regardless, it is probably worth your while to do a second questionnaire.

    • 5). With your profile and risk tolerance identified, start to research an asset allocation strategy, based on your financial goals. Decide how much to invest in stocks and how much in bonds and other fixed-income investments. Generally speaking, stocks provide a good hedge against inflation risk, but are subject to investment risk. High-quality bonds and other fixed-income investments, such as a bank deposits, protect you from investment risk but are subject to inflation risk.

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