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Ten questions to assess your risk level

Take the example of the investor in this week's Portfolio Clinic, who is 60 and about to retire. He hits the nail on the head when he says that his risk appetite is about to drop as he stops work. But can he really afford to lose any of the £450,000 portfolio he has carefully built up over 25 years? He's also considering using a financial adviser. How would a financial adviser assess his risk? He would probably use a psychometric questionnaire.

Earlier this year Lloyds Bank Private Banking kindly provided me with the 10 psychometric questions they use to assess clients' risk levels. It's worth taking five to 10 minutes to see how you (and your spouse or partner) score. I have given the points allocated to each answer and the scoring system below.

 

1. How would you describe your typical attitude when making important financial decisions?

Very adventurous (5)

Fairly adventurous (4)

Balance of adventure and caution (3)

Fairly careful (2)

Very careful (1)

 

2. When considering a major financial decision, which statement BEST describes the way you think about the possible losses or gains?

Excited about the possible gains (5)

Optimistic about possible gains (4)

Accept that gains and losses are both possible (3)

Conscious of the possible losses (2)

Worried about the possible losses (1)

 

3. How would you rate your own willingness to take financial risks?

Very low risk taker (1)

Low risk taker (2)

Moderate risk taker (3)

High risk taker (4)

Very high risk taker (5)

 

4. If I held a share-based investment and heard bad financial news I would worry about it.

I strongly agree with this statement (1)

I tend to agree with this statement (2)

I tend to disagree with this statement (3)

I strongly disagree with this statement (4)

 

5. I would enjoy exploring new and different investment opportunities.

I strongly agree with this statement (4)

I tend to agree with this statement (3)

I tend to disagree with this statement (2)

I strongly disagree with this statement (1)

 

6. If I had money invested in shares I would be nervous about the stock market falling in the short term.

I strongly agree with this statement (1)

I tend to agree with this statement (2)

I tend to disagree with this statement (3)

I strongly disagree with this statement (4)

7. If you had spare funds to invest, would you choose a risky investment for the excitement of seeing how it would perform?

Very likely (4)

Possibly (3)

Unlikely (2)

Very unlikely (1)

 

8. How do you think a close friend would describe your attitude to taking financial risks?

Very daring (5)

Daring (4)

Balancing risk and caution (3)

Careful about taking risks (2)

Very careful about taking risks (1)

 

9. Imagine that you have some money in a low interest savings account which you want to invest. You have the choice of two investment products. Which option are you most likely to choose?

A return slightly above a savings account with a small risk of losing some of your initial investment (1)

The potential of a higher long-term return but some risk of losing a substantial portion of your investment (3)

Some of your money in each product (2)

 

10. Over the past three years what changes have you made in your personal savings and investments?

Entirely moved towards or remained at higher risk (5)

Mainly moved towards higher risk (4)

Mainly moved towards or remained at moderate risk (3)

Mainly moved towards lower risk (2)

Entirely moved towards or remained at lower risk (1)

 

Score rangeOutcome
10-16Level 1 – Very low risk
17-23Level 2 – Low risk
24-28Level 3 – Medium risk
29-33Level 4 – Medium to high risk
34-38Level 5 – High risk
39-44Level 6 – Very high risk and above