Wealth Management: A sample of risk profiling questions

Sample risk profiling

1. Investments with higher returns are normally associated with higher risks, i.e. the unpredictability in achieving return. For example, although investment portfolio D below achieved a 14% average annual return over a 10-year period, it gained 86% in its best year but lost 25% in its worst year. Among the following investment portfolios, which one would you prefer to invest in?
   

   Return over 10 years
   Investment Portfolio	Best year	Worst year	Average return
   A	7%	3%	4%
   B	10%	-2%	6%
   C	25%	-8%	12%
   D	86%	-25%	14%
   E	120%	-50%	18%



2. Consider the below two investment products, A and B and their average annual return with their associated risks. If you were to choose between products A and B, how would you invest?
   

   Investment product	Average annual return	Risk of losing principal
   A	6%	minimal
   B	11%	potential loss 20%

   
   
   1. 100% in Investment A and 0% in Investment B
   2. 70% in Investment A and 30% in Investment B
   3. 30% in Investment A and 70% in Investment B
   4. 20% in Investment A and 80% in Investment B
   5. 0% in Investment A and 100% in Investment B


3. Which of the following scenario best describes your reaction when there is a steep decline in your investments over a few months?
   
   1. I would liquidate all my investments immediately
   
   
   2. I would liquidate some of my investments and switch to other investments which are less volatile
   
   
   3. Do nothing. I would just leave the investments alone but monitor them closely, since the investments are meant for the long term
   
   
   4. I would buy more investments to average out the cost
   
   
   5. opportunity as it was a good investment before and it is even better now with the drop in price


4. Which of the following best describes your attitude towards investment decisions?
   
   1. I am very concerned about the preservation of my wealth and prefer to avoid risky investments in order to minimise the risk of losing my money
   
   
   2. I am worried about losing my money, but if I leave it in cash, I cannot preserve it from inflation. In this case, I will leave it to an established fund manager to manage my money
   
   
   3. I read research reports from stockbrokers and analyse the stocks thoroughly. In addition, I also read daily economic updates from my dealers and make my own decisions in investing
   
   
   4. I like to discuss with my friends and brokers on the latest 'market news and stories' and will invest based on their 'recommendations' and on the current market 'trend'
   
   
   5. I trade actively in stocks and I believe I have better knowledge about investments than my brokers. My stock selections are very good and I make my own investment decisions.

Reprinted with permission from BankingInfo (A Consumer Education Programme by Bank Negara Malaysia)

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