What’s your risk tolerance?
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There’s a new tool out that might give you a better sense of your risk tolerance.
Professor Sherman Hanna of Ohio State University created the Risk Tolerance Survey, which gives you a few questions and provides you an assessment of your risk tolerance (i.e., how much risk you’re comfortable with). Unlike other models, this one is supposedly based on more rigorous research and provides more plausible advice.
Take the survey here: http://hec.osu.edu/people/shanna/rts/
The problem with these tools is that they assume people can give educated answers about risk. More often than not, I hear people repeating what they’ve heard others say and assuming it’s right for them. “I don’t want to get in the stock market because it’s too risky!” That’s the wrong answer for 22-year olds! The cliched answer, I think, is more education about risk and personal finance.
More reading: I’ve written a little bit about risk in my 2-page overview of personal finance.
Read a news report about the Risk Tolerance Survey: http://researchnews.osu.edu/archive/riskaver.htm