Investing 101: Understanding Risk Tolerance

There's a trend on social media that goes something like this: "It's literally so simple: Open a TFSA at Wealthsimple, buy a globally diversified ETF, invest every month, chill and let your money grow." While it sounds appealingly simple, it's often not that straightforward, and such advice can be frustrating for those who feel overwhelmed by the world of investing.

That's why I'm starting this investing series! Every few months, my newsletter will focus on the basics of investing and how to get started. This month, we're diving into how to discover your personal investment style.

What's Your Investing Style?

All investing involves risk. Whether you're buying guaranteed certificates (which carry inflation risk), real estate (which has interest rate risk), or stocks (which have market risk), understanding your comfort level with risk is key to making informed investment decisions.

Answer the following questions honestly to get a better sense of your risk tolerance.

1. Imagine you check your investment account and see it's down 10% from last month. How do you feel? 

   1. Panicked. I immediately want to sell everything before it gets worse. 

   2. Anxious. I'm concerned, but I'll wait and see what happens next month. 

   3. Calm. The market goes up and down, I'm in it for the long haul.

   
   

2. You've been investing in a company for a while, and it's been doing well. Suddenly, the stock price drops by 5% in a single day. What's your initial reaction? 

   1. Fear and worry. You start to imagine the stock plummeting further and losing a lot of money. 

   2. Mild concern. You wonder what caused the drop but decide to wait and see what happens before making any decisions. 

   3. Indifference. Short-term fluctuations are normal, and you're focused on the long-term potential of the company.

      
      

3. You inherit $10,000. Which investment option sounds most appealing? 

   1. A low-yield savings account or certificate of deposit.

   2. A balanced portfolio of stocks and bonds. 

   3. High-growth stocks with the potential for high returns (but also high risk).

   
   

4. Thinking about your investment portfolio keeps you up at night. 

   1. Often 

   2. Sometimes 

   3. Never

      
      

5. You're comfortable with the idea that you could lose some money in the stock market in exchange for the potential to earn higher returns over time.

   1. Strongly disagree 

   2. Neutral 

   3. Strongly agree

Scoring:

Mostly A's: You likely have a low risk tolerance.

Mostly B's: You likely have a moderate risk tolerance.

Mostly C's: You likely have a high risk tolerance.

Disclaimer: This quiz is for educational purposes only and should not be taken as financial advice. It's important to discuss your individual financial situation and risk tolerance with a qualified financial advisor.

This is just step one in discovering your investment style. Stay tuned for future newsletter on investing!

Keep learning, keep growing and if you'd like some help along the way feel free to reach out!

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