Risk is part of investing. There’s no getting away from it. But how you approach that risk will have a direct impact on the short and long-term results of your investments.
The more time you have to build wealth, the easier it is to deal with the changing value of your investments. If you need a steady income from your investments to meet expenses now, your tolerance for risk is probably pretty low.
Take a few minutes to think about how you feel about risk before you commit your money; it can help give you an idea of what it means for the way you approach investing.
What are the benefits of an investment adviser?
If you’re looking for help with your money, a qualified adviser can:
- Help you summarize your financial situation
- Help you develop a plan
- Answer your questions
- Act in your best interests
You can expect your adviser to:
- Know their clients (also known as "KYC" – Know Your Client*)
- Behave in an ethical and honest manner
- Fully disclose all risks
- Make personalized recommendations
* The KYC requirement in the investment industry ensures investment advisers know detailed information about their clients' risk tolerance, investment knowledge and financial position. KYC requirements are met through the collection of information on forms designed to protect both clients and investment advisers. Clients are protected by having their investment adviser know what investments best suit their personal situations and investment advisers are protected by knowing what they can and can not include in their client's portfolio.
You should have a clear understanding of your values, your goals, and your wishes in life – both short and long-term. Visit Getting Started to prepare for your conversations with your adviser. You should also have clear expectations about what you want your adviser to do for you. Whether you're new to investing or like to take the lead - it's just a matter of finding the right match.
How do I find the right investment adviser?
Choosing A Financial Adviser Factsheet
How comfortable am I with risk?
How much risk do you feel comfortable with? How much risk can you afford to take? Your appetite for risk will depend on your personal goals, life stage, lifestyle, timeline, and knowledge.
You also need to consider your personality. Some people who like to live on the edge in other parts of their lives like to play it safe when it comes to money, and vice-versa. Try our risk-assessment quiz as a first step towards properly evaluating your risk tolerance, a key criteria in all investment decision-making.
Take this test to discover more about your personal risk tolerance, a key criteria in all investment decision-making.
Question 1:
Your best friend says his uncle will give you a chance to invest in a oil and gas opportunity in northern Alberta. He says the investment will more than double before the end of the year. What do you do?
Question 2:
Your boss is going to pay a year-end bonus and gives you a choice between $500 cash or $600 in stock. You can’t sell the stock for at least 12 months, and in that time the stock price could go up or down. What do you do?
Question 3:
A friend invites you to join a hockey pool to the tune of $20. You could win over $500. What do you do?
Question 4:
Your parents decide to give you an early inheritance of $10,000, asking that you invest it wisely. What do you do?
Question 5:
A stock you bought over a year ago has suddenly increased in value by over 40%. What do you do?
Calculate My Risk Tolerance
Your Score: 16 Points
15 points or less:
You’re careful. You’ll be happiest with investments that offer some guarantees, or you’ll lie awake at night thinking about it. Consider term deposits, treasury bills, guaranteed investment certificates and government bonds.
16 to 35 points:
You’re not afraid to risk a little, but you don’t take risks unnecessarily. You’ll risk a bit if there’s a good potential payoff, but you don’t want to put all of your savings on the line. That’s a prudent strategy, though it won’t double your savings overnight. You’ll probably want a well-diversified portfolio that’s balanced between cash, bonds and stocks.
36 or more points:
You’re a gambler, willing to risk everything on the right deal. Sometimes that’s OK, as long as you know you really could lose it all. If you can handle the potential losses, you might have a chance at really good returns. You’re likely to invest heavily in stocks, maybe even some shares of new companies. You might also be the type to start your own business.
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