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.

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

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Knowledge Base ID :   1451
Last Reviewed :   May 22, 2014
Source :   BankingInfo
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