Understand Yourself

To Develop a strategy for creating an investment plan, you should understand what kind of investment style best suits your needs. Just as we all have different ways of doing things, we are all unique investors, too.

That's why it's really important for you to be honest about what makes you comfortable, as well as uneasy. When it comes to investing, you have to be yourself or you'll just end up not sticking to your plan. Let's face it, not all of us like to drive in the fast lane. And not all of us need to!

What Is Your Risk Tolerance-

We could razzle-dazzle you with lots of statistics about investment risk and what it might do for your results. Instead, we're just going to tell you what you really need to know. First of all, "RISK" means the likelihood that an investment may either lose money or not grow the way your expect. Generally, the more risky an investment is, the higher the expected RETURN. That's it, plain and simple.

Each kind of investment you'll be considering has its own risks and its own potential for return. When deciding which investments are right for you, the trick is to strike the right balance between the amount of risk you're comfortable with and the return you need. This pursuit of balance is called "ASSET ALLOCATION." We'll talk more about that later.

What's Your Style?-

To figure out your investment style, you'll need to understand how comfortable you are with the normal ups and downs in the stock market. You'll also need to assess whether or not you're going to need your money any time soon, and how many more years you want to work before you retire. To help you with this, we've shipped up the following questionnaire.

1.  How much investment risk are you willing to accept?  

            A.     I can accept very little volatility. I do not want to lose money, even if it means

                    my returns will be relatively small. (1 point)                   

            B.     I would be willing to accept the occasional loss as long as my money was in

                    sound high-quality investments that could be expected to grow over time.

                    (5 points)

            C.     I am willing to take substantial risk in pursuit of significantly higher returns.

                    (9 points)

2.    Which of the following is most true for you regarding your investments?                

            A.    My money should be 100% safe, even if it means my returns do not keep up

                   with inflation. (1 point)

            B.    It's important that the value of my investments keeps pace with inflation. I am

                   willing to risk an occasional loss in my original investments, so that my

                   investments may grow at about the same rate as inflation over time. (5 points)

            C.    It is important that my investments grow faster than inflation. I am willing to

                   accept a fair amount of risk to try to achieve this. (9 points)

3.    Understanding that an investment portfolio will fluctuate over time, what's the

           maximum loss you would be prepared to accept in any one-year period?

            A.    No loss (1 point)

            B.    5% loss (3 points)

            C.    10% loss (5 points)

            D.    20% loss (7 points)

            E.    30% loss (9 points)

4.  Select the portfolio most appealing to you. See chart below.

            A.    Portfolio A (1point)

            B.    Portfolio B (3 points)

            C.    Portfolio C (7 points)

            D.    Portfolio D (9 points)

        *Total Return includes a capital appreciation and all dividends and interest

          income before taxes. Returns are for illustrative purposes only,

       Total Score from question 1-4: _____________ points

Use this score to assess your risk profile. In general, the higher your score, the more comfortable you may be with financial risk. Keep in mind two tings. First, review this assessment of your risk tolerance in relation to your overall personal finances. You may have different risk tolerances for different goals. Second, the category indicated by your score may or may not be appropriate for reaching your goals. You should weigh your tolerance for investment risk against your willingness to risk falling short of your goal.

Now that you have completed the risk quiz, you can use the following chart to help identify your investment mix. To find out which of the five investment mixes is most appropriate, simply identify your age and read across to your score. There is no right, wrong or one-size-fits-all investment strategy. Your financial plan should be tailored to fit your personal circumstances. It's important to select a mix of investments that meet your savings time frame, financial objectives, and willingness to tolerate risk.

Determine the effect of time on your risk tolerance

Determine your risk tolerance

Identify your investment mix guideline

Now that you have identified the portfolio category best suited to you, find the pie chart that represents your investment mix.

Select your investment options

If you are comfortable with investment mix you have identified, locate the appropriate investment types and choose those investment options you think will assist you in  achieving your objective.

Be Diversified

As you determine the investment mix that's right for you, keep in mind the importance of asset allocation. Spreading your savings among different types of investments - stocks, bonds and cash reserves - can be very powerful tool for financial planning.

There are no hard and fast rules about the number of investment options in which you should invest. However, spreading your money among several different investment options that invest in different asset classes may allow you to take advantage of a Diversified portfolio. When you diversify, the profits earned from one type of investment can help offset the possible losses from another.

You've thought carefully about a lot of things that can be vitally important to your Future. You've even gone to the trouble of figuring out your investment style to choose investment options that are right for you. Now, here's the hard part: trust your judgment and stick to your plan! Some day, you'll look back on all the good work you've done, and be really proud of yourself. It's pressure-free! It's got profit potential...and it's priceless!